China’s yuan closed up on Friday

Shanghai: China’s yuan closed up on Friday after the central bank set an unexpectedly strong official midpoint, following on from an overnight slip in the dollar, to signal its intention to let the Chinese currency appreciate further in the near term.

Spot yuan closed at 6.1419 against the dollar, up an unusual 0.12 per cent from 6.1492 at Thursday’s close.

The People’s Bank of China set the yuan’s midpoint at 6.1997, up 0.16 per cent from 6.2096 on Thursday. Traders said it was rare for the central bank to let its base rate, from which the yuan can rise or fall 1 per cent in a day, rise about 100 pips from the previous day.

Driven by strong capital inflows into China, the PBOC has guided the yuan to a slew of record highs since early April, but the rally paused earlier this week after the dollar broke through key resistance.

In latest data that betrayed the trend of fund inflows, Chinese banks bought more foreign currency than they sold for clients in April, with net purchases of $34.3 billion in over-the-counter transactions, figures from the State Administration of Foreign Exchange (SAFE) showed on Friday.

“By setting a quite strong midpoint today, the PBOC is signalling that the yuan’s recent appreciation trend has remained intact,” said a trader at a Chinese commercial bank in Shanghai.

Several traders now raised their forecast for the yuan to appreciate to 6.0 against the dollar in coming months unless there is a reverse of capital inflows, compared with 6.2 they had expected until early April.

The Bank for International Settlement (BIS) index for the yuan’s real effective exchange rate (REER) - the currency’s value against a trade-weighted basket after adjustments based on inflation - appreciated 0.88 per cent to 115.24 in April from 114.23 in March, the seventh consecutive month of appreciation, BIS data published late on Thursday showed.