China’s central bank yesterday handed investors a confidence booster, strengthening the yuan’s fixing by the most in three months and talking up the currency as markets reopened after the week-long Lunar New Year break.
The yuan had its biggest one-day advance since a peg to the US dollar was scrapped more than a decade ago, as the currency caught up with a decline in the greenback during the holiday. China’s balance of payments position is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, People’s Bank of China (PBOC) Governor Zhou Xiaochuan (周小川) said in an interview published in Caixin magazine over the weekend.
The currency appreciated 1.25 percent, the most since July 2005, to 6.4954 per US dollar as of 4:36pm in Shanghai, according to data compiled by Bloomberg. The offshore yuan rose 0.14 percent to 6.4991, broadly in line with the onshore rate.
The Chinese central bank raised its daily fixing against the greenback by 0.3 percent, the most since November last year. A gauge of US dollar strength declined 0.8 percent last week, while the yen climbed 3 percent and the euro advanced 0.9 percent.
“In the near term, the stronger fixing and Zhou’s comments reflect the PBOC’s consistent view of stabilizing the yuan,” said Ken Cheung, a Hong Kong-based strategist at Mizuho Bank Ltd.
The nation’s foreign exchange reserves shrank by US$99.5 billion last month, the second-biggest decline ever, as the central bank sold US dollars to fight off yuan depreciation pressure.
An estimated US$1 trillion of capital left China last year, according to Bloomberg Intelligence.
G20 finance ministers and central bank governors are to meet in Shanghai on Feb. 26 and Feb. 27. China is likely to keep the yuan stable before the gathering, but allow the currency to drop mildly against the US dollar in the medium to long term due to weak fundamentals and capital outflows, said Qi Gao, a Hong Kong-based strategist at Scotiabank.
“The PBOC more or less judged the movements of the yen and the euro and saw that as a risk-off situation and fixed accordingly,” DBS Hong Kong Ltd managing director for treasury and markets Tommy Ong (王良亨) said.
The New Taiwan dollar yesterday closed up 0.3 percent, or NT$0.099, to NT$33.421 against its US counterpart in Taipei trading, as the greenback showed signs of weakness following US Federal Reserve Chair Janet Yellen’s dovish statements on interest rate hikes.
It is the highest level for the local currency since Jan. 6, after the yuan picked up 1.27 percent and the yen gained 2.68 percent during the nine-day Lunar New Year holiday, Taiwan’s central bank said in a statement.
The local currency rose to nearly NT$33 during the day’s trading, but lost steam toward the end, apparently due to the central bank’s intervention, a trader said on condition of anonymity.
There is not much room for the NT dollar to gain value, as a strong currency might hurt exports, which drive about 70 percent of the nation’s GDP, the trader said.
The South Korean won dropped 0.89 percent during the holiday, suggesting the undesirability and limit to the NT dollar’s appreciation, as both nations seek to beat each other in electronics innovations, the trader said.
Different research institutes have forecast the NT dollar will trade at NT$33.5 on average versus the greenback this year, as external demand might remain listless in the first half.
Additional reporting by Crystal Hsu
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