Chinese Yuan Strengthens to 7.1018 Against USD on Thursday

Chinese Yuan Strengthens to 7.1018 Against USD on Thursday

BEIJING, Feb. 22 — The Chinese yuan, also known as the renminbi, demonstrated resilience on Thursday. The currency appreciated by 12 pips, reaching 7.1018 against the U.S. dollar, as reported by the China Foreign Exchange Trade System.

The yuan’s movement in China’s spot foreign exchange market has specific limits. It can vary up to a 2 percent range around the central parity rate set daily. Market makers determine this rate. They use a weighted average of prices from before the interbank market opens each business day.

USD/CNY Outlook

Over the past month, the Chinese Yuan (CNY) has shown a weakening trend, starting the year at around 7.1000 and nearing 7.2000 in early February. Analysts at ING have commented on the USD/CNY outlook, noting that economic activity has been sluggish at the year’s start. This sluggishness raises the possibility of further monetary easing in the coming months, which could put short-term downward pressure on the yuan.

Looking forward, a potential recovery in sentiment or economic fundamentals, along with global interest rate cuts, could catalyze the CNY’s appreciation. While a rapid turnaround in the Chinese economy is not anticipated, the 7.3000 level is expected to continue acting as a significant threshold for USD/CNY. Analysts predict the broader trend will favour a lower USD/CNY in the latter half of the year.

Yuan Trading Dynamics and PBOC Intervention

The People’s Bank of China (PBOC) sets the daily reference rate for the onshore yuan, allowing it to fluctuate within a 2% band against the USD/CNY pair. Conversely, the USD/CNH pair, involving the offshore yuan, is not subject to these trading range restrictions.

Market Signals and PBOC Operations

A significant deviation from the expected exchange rate is often seen as a signal from the PBOC. The closing rate for USD/CNY the previous day was 7.1905.

In its monetary policy operations, the PBOC injected 58 billion yuan into the market. This injection was through 7-day reverse repurchase agreements (RRs). The interest rate remained unchanged at 1.8%. On the same day, reverse repurchase agreements worth 255 billion yuan matured. This led to a net withdrawal of 197 billion yuan from the market. These transactions were part of the open market operations (OMOs).