Yuan near all-time high as China tries to slow ascent

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Yuan near all-time high as China tries to slow ascent

Even as China tries to slow its ascent with weaker than expected daily fixings, the yuan is approaching its strongest level against trade partners currencies.

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The Bloomberg s replica of the CFETS RMB basket index increased by 0.2% to 102.6044, nearing the current all-time high touched in August 2015. The index, which measures the yuan versus 24 trading partners, is poised for a third day of gains.

The yuan s rally shows that traders think there is a low chance of an aggressive official intervention, given that China s currency is supported by strong exports and capital inflows. The moves by Beijing to rein in appreciation have been measured so far. A committee formed by key players in the currency market has urged banks to limit speculation, despite the fact that it set weaker than expected reference rates for the yuan for four consecutive days.

Paul Mackel, global head of foreign-exchange research at HSBC Holdings Plc said that the PBOC has stepped away from day-to-day intervention in the yuan and the market doesn't believe that it will use a strong hand to weaken the currency. Authorities have signaled some discomfort, but the emphasis is on stability, he said.

The weakness of its other components against the dollar is caused by lifting the yuan against the basket. After the renomination of Jerome Powell as the Federal Reserve chair, the dollar is getting a boost from bets for policy tightening in the U.S. Since 2017 the Yen, which has the third-biggest weight in the index, fell to the lowest since 2017.

The yuan remains well supported, because of strong trade surpluses and robust portfolio inflows, which means the CFETS Index could continue to rise if the USD continues to strengthen, said Khoon Goh, head of Asia research at Australia New Zealand Banking Group Ltd.

The yuan is making a U-turn as it nears the end of its rise, according to Huachuang Securities. The currency rally could lose momentum because portfolio inflows may weaken with more monetary policy divergence between the Fed and the PBOC, Yu Zhang, chief macro analyst at the firm wrote in a note.

The rally of the yuan hasn't shown signs of slowing yet. The onshore currency is Asia's best performing this year with gains of more than 2%. The PBOC has been more tolerant of the yuan gain in recent years and has promised to make the currency more flexible. In 2015, a revision of the yuan fixing method caused a shock currency devaluation.

The offshore yuan rose by 0.1% to 6.3862 per dollar at 14: 44 p.m. in Shanghai. Its onshore counterpart was little changed at 6.3842 per dollar.

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