Chinese yuan hits 3-year high against US dollar despite central bank easing

Renminbi Photo: VCG

The official daily exchange rate of the yuan to Chinese currency was pegged at 6.3498 per US dollar on Thursday, up 179 basis points from the previous day, indicating continued strength in the yuan despite recent measures taken by the central bank to channel liquidity into the economy.

The daily fixing’s move past 6.35 echoed a similar trend to the previous day when the onshore and offshore exchange rates of the yuan against the dollar both strengthened beyond the 6 level. , 35, reaching the highest since May 2018.

The strength of the yuan against the dollar contrasted with the apparent weakness of a basket of currencies comprising the euro, Australian dollar and yen this year.

Even more strikingly, the rise of the yuan against the US dollar was not interrupted by the central bank’s announcement on Monday that a universal 50 basis point reduction in the reserve requirements of financial institutions will come into effect from the. December 15. This decision will release 1,200 billion yuan. ($ 189 billion) of long-term liquidity in the economy, according to the central bank.

The move follows a similar general cut in July, when a 0.5 percentage point reduction in the reserve requirement ratio was applied to financial institutions, a measure that was expected to free up long-term capital of around 1,000. billion yuan.

In addition, the central bank cut the repayment rate by 25 basis points to support rural and small businesses, as of Tuesday, according to the Securities Times, another rate adjustment to the repayment facility after the central bank cut interest rates by 25 basis points in July. 2020.

The risk that foreign funds take in purchasing yuan-denominated assets was seen to have partly supported the strength of the yuan.

Net capital inflows into the Chinese mainland stock market via the northward link between Hong Kong and mainland stock exchanges totaled 21.66 billion yuan, the third time the daily net buying figure has exceeded the 20 billion yuan, according to the Chinese financial information site

In addition, it is a tradition that between December and the start of the New Year, when the Chinese Spring Festival falls, exporters tend to sell the dollar in exchange for the yuan, which could support the Chinese currency, according to the authorities. media.

A stronger yuan, arguably a drag on Chinese exports, was seen to be offset by the country’s unmatched export strength, as the coronavirus and its mutations – the Delta and Omicron variants – remain of great concern to the economy. world as a whole, analysts said.

Still, some expect the yuan’s bullish spiral will not continue.

“China’s central bank has signaled a limit to its tolerance for [yuan’s] recent breakthrough in setting its benchmark rate lower than expected, ”Bloomberg reported Thursday.

The spread between the daily benchmark rate and the forecast of a Bloomberg survey of analysts and traders was the largest since mid-October, when the yuan gained momentum on strong trade figures and in hopes of easing tensions between the world’s two largest economies, according to the report. .

World time

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