Yuan rises to one-week high as PBOC boosts fix amid US dollar drop

[BEIJING] The yuan climbed to its strongest level in a week, as Chinese authorities work to halt the currency's recent plunge with stronger fixings and a verbal defense.

The currency rose as much as 0.26 per cent to 6.8900 per US dollar, the strongest level since Nov 22, before trimming the gains to trade 0.24 per cent stronger as of 10:30am local time.

The offshore rate climbed 0.18 per cent to 6.9146. A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 exchange rates, gained for the first time in three days.

The People's Bank of China strengthened its fixing to 6.8889 per US dollar on Tuesday as a gauge of the greenback's strength fell overnight. That was after Yi Gang, the central bank's deputy governor, said on Sunday the yuan will remain stable in the future and the nation's foreign reserves are "very ample".

The currency slumped to the weakest level in eight years last week amid the US dollar's climb, sparking concerns that it would hit seven this year as capital leaves the nation.

"The government wants to take the chance of a dollar retreat to ease the yuan's recent slump as too big a drop will erode confidence and lead to faster capital outflows," said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd.

"In the short-term, the offshore yuan could strengthen beyond the 6.9 handle and the onshore rate could stay stronger than that. But in the medium-term, the yuan will still depreciate as the greenback's rally hasn't ended yet."

China is said to be contemplating more capital restrictions that could prevent the yuan from tumbling. The government is planning sweeping curbs on its companies' overseas acquisitions, including barring most foreign investments of US$10 billion or more, people with knowledge of the matter said.

The move is aimed at alleviating pressure on the Chinese currency to depreciate, Scotiabank strategist Gao Qi wrote in a note Tuesday.

BLOOMBERG