Yuan rises most in a month as PBOC fixing seen backing currency

[SHANGHAI] The yuan advanced the most in a month amid bets China's central bank is stopping the currency from weakening beyond a key level.

The People's Bank of China strengthened its daily reference rate, which restricts onshore moves to 2 per cent on either side, even as the dollar rose overnight. There is a lot of speculation that authorities are preventing the yuan from slipping past 6.7 against the dollar for the time being, said Sue Trinh, Royal Bank of Canada's Hong Kong-based head of Asian foreign-exchange strategy.

The Chinese currencyclimbed 0.21 per cent to 6.6831 per dollar as of 9:58 am in Shanghai, after dropping past 6.7 for the first time since 2010 on Monday. The yuan in Hong Kong's offshore market advanced 0.24 per cent to 6.6945.

"China does not want to see a yuan depreciation, at least for now, because that would spur speculative trades to short the currency," said Zhou Hao, an economist at Commerzbank AG in Singapore.

"The yuan bears are all waiting for an opportunity to come, and some have already started building such positions. If the yuan weakens beyond 6.7 a dollar, it could reach 6.75 quickly, and we'll start to see reports about it hitting 6.8."

The central bank raised the daily fixing by 0.04 per cent to 6.6946 per dollar on Wednesday. The yuan traded in Shanghai and in Hong Kong rallied Tuesday afternoon amid speculation the authorities were supporting the currency.

"Our model showed the fixing should have been set weaker than 6.70 today, but it turned out to be stronger," said Gao Qi, a strategist at Scotiabank.

"The central bank could defend the 6.70 level to manage market expectation in the near term as the depreciation pressure on the yuan will remain in the rest of this year."

BLOOMBERG