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Yuan’s Sudden Surge Past 6.7 Puts Spotlight on Central Bank

Yuan’s Sudden Surge Past 6.7 Puts Spotlight on Central Bank

China’s yuan surged past a key technical level, a sign that the central bank may soon be forced to rein in further strength in the currency.

The gains, which pushed both the onshore and offshore rates past 6.7 per dollar, accelerated just an hour before the official close at 4:30 p.m. in Shanghai. The close was the center of attention earlier this week amid speculation the central bank was using it to influence its daily reference rate on the following day.

Currency traders may also be preparing for a stronger-than-expected set of economic data from China, with reports on gross domestic product, industrial production and retail sales due Monday. The offshore rate was 0.26% stronger at 6.6961 per dollar as of 5:08 p.m. The onshore yuan rose 0.39% to 6.6991.

The daily fixing “is quite likely to be the tool of choice for the central bank to slow the strength,” said Fiona Lim, a senior foreign-exchange analyst at Malayan Banking Berhad. The yuan could rise to 6.6550, she added. “Imposing policies targeted to restrict yuan appreciation may be counterproductive for a government that is keen to attract investors into its financial markets.”

Yuan’s Sudden Surge Past 6.7 Puts Spotlight on Central Bank

After starting the week with its biggest drop since March, the yuan is close to erasing all losses since the People’s Bank of China scrapped a two-year rule that made it expensive to bet against the currency. Beijing may now need to take more measures to rein in the appreciation, including guiding the yuan lower with weaker reference rates.

More aggressive measures include tweaking the fixing formula or relaxing capital controls installed in the aftermath of a shock devaluation five years ago.

The Chinese exchange rate posted its best quarterly advance since early 2008 in the three months through September, as the dollar slumped and the yuan’s wide interest-rate premium over the rest of the world attracted foreign inflows.

©2020 Bloomberg L.P.

With assistance from Bloomberg