China’s Daily Yuan Fixing Hasn’t Been This Steady Since 2011

(Bloomberg) -- China’s central bank is continuing to keep its yuan fix flat as signs of progress emerge in trade talks with the U.S., with strategists divided on how the currency will fare.

The People’s Bank of China set the daily reference rate around 7.073 per dollar for a fifteenth straight trading day on Monday, pushing the fixing’s 10-day volatility to the lowest since January 2011. A gauge of 30-day swings has also plunged to the lowest since 2015. The yuan can trade 2% in either direction of its daily fixing.

While the daily fix has remained stable, the currency has strengthened of late after consistently trading weaker than the fix. The yuan was poised for its fifth consecutive session of gains against the greenback on Monday, reaching its strongest in nearly two months.

With the scant change for weeks in the fix, any deviation by the PBOC from recent ones is likely to be taken as a major signal by traders.

“Any change would be seen as a signal, and markets may chase the currency stronger,” said Bloomberg Intelligence’s Asia currency and rates strategist Stephen Chiu. China will want to keep the currency stable at least until details of a yuan pact are announced, he added.

Both sides have pledged to keep trade deal prospects alive, with the partial agreement announced Friday. It included an increase in Chinese purchases of American agricultural products and unspecified commitments on intellectual property and currency.

Strategists are split on how the yuan’s course might change after the trade deal. While Morgan Stanley’s Min Dai thinks investors should go long on the offshore yuan against the dollar amid a potential relief rally in emerging market currencies, Jason Daw at Societe Generale and Goldman Sachs Group Inc. both see limited upside for the currency. Bank of America Merrill Lynch analysts revised their onshore yuan year-end target stronger to 7.3 per dollar.

The PBOC has been limiting the currency’s weakness after it plunged past the key 7 per dollar level when trade talks broke down in August. That led the U.S. to formally label China a currency manipulator. Treasury Secretary Steven Mnuchin signaled Friday he’ll consider lifting that designation once the first phase of the U.S.-China agreement is complete.

--With assistance from Ran Li.

To contact Bloomberg News staff for this story: Livia Yap in Shanghai at lyap14@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Kevin Kingsbury

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With assistance from Bloomberg