Yuan firms after lending rate cut falls short of Fed easing
SHANGHAI — China’s yuan firmed on Friday
as the central bank delivered a less aggressive cut in its
lending benchmark than its U.S. counterpart had this week and
amid signs Beijing is keen to keep the currency stable during
key trade talks in Washington.
The yuan also climbed offshore as the People’s Bank of China
prepared to issue another batch of yuan-denominated bills in
Hong Kong next week, which would drain offshore yuan liquidity
and support the currency.
The onshore yuan rose 0.15% to 7.0875 per dollar
at midday, while the offshore yuan firmed 0.3% to
7.0825 per dollar.
On Friday, China marginally cut its new one-year benchmark
lending rate for the second month in a row. The one-year Loan
Prime Rate (LPR) was set at 4.20%, five basis points lower than
last month. The five-year LPR was unchanged, at 4.85%.
Ken Cheung, FX Strategist at Mizuho Bank Ltd, attributed
yuan’s strength on Friday to “PBOC’s less dovish stance” on
monetary policy than that of the U.S. Federal Reserve, which cut
its benchmark by 25 basis points on Wednesday.
“Moreover, the countercyclical factor was firmly on to
anchor CNY fixing, which builds up expectation that the PBOC
will keep the CNY steady to smooth out the principal-level trade
talks in October,” Cheung said.
Traders say they have seen the PBOC setting
stronger-than-expected mid-points recently, in an effort to
stabilize the yuan as Beijing and Washington resume negotiations
to end their bitter trade dispute.
Separately, the PBOC announced it would issue 10 billion
yuan of six-month bills in Hong Kong on Sept. 26, the sixth
batch of offshore issuance since last November.
Citi said in a report on Friday that the tool is
increasingly used as a countercyclical measure to slow yuan
“We reckon there is no CNH bill maturity around the issuance
date thus this is a new issuance. Timing of the issuance is just
before Oct. 1 70th anniversary of the PBOC and October trade
talks, signaling the PBOC prefers to keep the RMB stable in the
near-term,” Citi wrote, adding persistent strong onshore yuan
fixings have sent similar signal.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 91.55, weaker than the previous day’s
The global dollar index fell to 98.218 from the
previous close of 98.272.
Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan’s value, traded
at 7.1471, -1.04% away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot
The yuan market at 4:32AM GMT:
Item Current Previous Change
PBOC midpoint 7.073 7.0732 0.00%
Spot yuan 7.0865 7.097 0.15%
Divergence from 0.19%
Spot change YTD -3.01%
Spot change since 2005 16.79%
Item Current Previous Change
Thomson 91.55 91.64 -0.1
Dollar index 98.218 98.272 -0.1
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People’s Bank of China (PBOC) allows the exchange rate to
rise or fall 2 percent from official midpoint rate it sets each
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 7.0825 0.06%
Offshore 7.1471 -1.04%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC’s official midpoint,
since non-deliverable forwards are settled against the midpoint.
(Reporting by Samuel Shen and John Ruwitch; Editing by Sam