Chinese renminbi seems to be moving toward stabilization, supported by external economic factors. People’s Bank of China strengthened yuan fixing to 6.6277 against dollar from Friday’s figure of 6.6511, reflecting a boost of 234 basis points. It was the biggest jump since June 23. In Shanghai forex market, yuan climbed for the fifth consecutive day as renminbi was trading at 6.6337, as of 1:40 PM local time, taking its five-session gains to 0.7%.
Weakness in dollar prompted the Chinese central bank to strengthen yuan daily fixing in the past few sessions, helping renminbi to crawl back on losses. Bloomberg dollar spot index, which measures greenback against peers, fell below 97, and was trading at 96.612 in early trading hours in Asia.
Following the weak gross domestic product (GDP) growth rate in the second quarter in the US, dollar came under downward pressure as investors turned bearish. Market sentiment for greenback is highly unsupportive, which has led to the depreciation.
Boost in yuan by PBOC comes ahead of the possible issuance of the Special Drawing Rights (SDR) bond by the World Bank. The World Bank is planning to sell about 500 million SDR units with a three-year tenor in China’s interbank market, Bloomberg reported. In addition, the authority is likely to continue with yuan appreciation ahead of the G20 meeting next month.
Few weeks back, yuan crossed the psychological level of 6.7 per dollar as weak economic outlook pushed investors to take their money out of the country. Since then, the central bank has been trying to keep the currency steady.
Going forward, China is likely to continue defending decline in the currency to keep it stable till its inclusion in the IMF basket of currency in October. The move would also support the authority’s plans for internationalization of renminbi.
Earlier today, the National Bureau of Statistics (NBS) released manufacturing data for large and state-owned enterprises for July. Manufacturing sector index slipped to 49.9 compared to 50 recorded a month earlier. A level below 50 indicates contraction in business activities.
In the money market, PBOC auctioned bills of seven-day reverse repos to add liquidity worth nearly $18 billion (120 billion yuan). The authority has been using liquidity tools to support growth in the economy instead of cutting benchmark rates, which are already at a low level.