China's yuan firms to 3-week high on PBOC's strong fixing, dollar weakness
China's yuan firmed to its strongest in three weeks against a broadly weaker dollar on Wednesday (12 July), as persistently firmer-than-expected central bank fixes reinforced perceptions that authorities have little tolerance for any sharp depreciation.
The People's Bank of China set the midpoint rate <CNY=PBOC> at 7.1765 yuan per dollar prior to the market opening, firmer than the previous fix of 7.1886 and Tuesday's official close.
The spot yuan <CNY=CFXS> opened at 7.1960 per dollar and was changing hands at 7.1901 at midday, 194 pips stronger than the previous late session close and 0.19% weaker than the midpoint.
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The PBOC has been setting a strong bias to the daily fix since late June. The spot rate is currently allowed to trade with a range of 2% above or below the official fix on any given day.
China reported on Tuesday that new bank loans jumped more than expected in June from the previous month, helped by the central bank's efforts to support the economy as a post-pandemic recovery fades.
Driven by stronger household lending, new banks' yuan loans reached 3.05 trillion yuan ($423.45 billion) in June. But the forecast-beating numbers left analysts unconvinced of any improvement in demand.
"At a time when confidence of both households and private corporates remains weak, we doubt expanding credit supply alone will be effective in lifting growth momentum significantly," Bank of America analysts said in a research note on Wednesday.
The global dollar index <.DXY> fell to 101.416 from the previous close of 101.732. The drop came ahead of US inflation data due out later on Wednesday, with expectations core consumer prices rose 5% year-on-year in June.
Maybank analysts said in a research note on Wednesday that the dollar could "bounce back and recoup some of its losses" if the inflation data was stronger than forecast, as it would raise expectations for further interest rate hikes.
In China, investors will be watching June trade data scheduled for release on Thursday.
The offshore yuan <CNH=D3> was trading 0.07% weaker than the onshore spot at 7.195 per dollar.
The one-year forward value for the offshore yuan <CNH1YOR=> traded at 6.9723 per dollar, indicating a roughly 3.19% appreciation within 12 months.
