The Chinese yuan ended a three-day run of losses after the central bank bolstered the reference rate as part of its efforts to promote the use of the currency globally.
The People’s Bank of China hiked the yuan daily reference rate by 0.05 percent on Thursday to 6.1531 per dollar. Direct trading between the pound and the yuan also kicked off in Shanghai. The yuan rose 0.08 percent to 6.2267 per dollar by 1:40 p.m. in Shanghai after earlier declining 0.33 percent since Monday.
Fed to Keep Rates Low
“The yuan gets some support as the Fed is likely to keep rates low for longer,” Banny Lam, the co-head of research at Agricultural Bank of China International Securities Ltd in Hong Kong told Bloomberg. “China’s determination in promoting yuan usage globally is also a positive. The currency needs to be stable with mild appreciation bias to attract more global interest.”
The Federal Reserve announced on Wednesday that it will retain the record low interest rates even when it phases out its monthly bond-purchase program.
The reference rate for the yuan against the pound was fixed at 10.4766 per pound on Thursday, compared to 10.4413 a day earlier, data from China Foreign Exchange Trade System shows. The spot rate declined 0.1 percent to stand at 10.5814.
Offshore Yuan Trades at Discount
The offshore yuan in Hong Kong rose 0.1 percent to trade at 6.2271 per dollar. 12-month non-deliverable forwards surged 0.06 percent to steady at 6.2345, a discount of 0.13 percent on the onshore spot rate. The onshore yuan’s one month implied volatility, which measures the expected shifts in the exchange rate used to assign prices to options, remained stable at 1.51 percent.
Reports show that South Korea, Canada and Singapore have launched plans to woo China to either set up direct exchange between the yuan and the respective local currencies or set up yuan clearing hubs. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
To contact the reporter of this story; Jonathan Millet at email@example.com