Beijing: China’s central bank moved to shore up the yuan with a stronger-than-expected fixing and a planned bond sale in Hong Kong.

The People’s Bank of China set its reference rate at 6.8930 per dollar Tuesday, 0.2 per cent higher than traders’ and analysts’ average forecast of 6.9089. The strong bias in the daily fix — which restricts the onshore yuan’s moves by 2 per cent on either side — is the largest since Bloomberg started releasing the survey estimates in August 2017. The central bank also said it plans to sell bills in Hong Kong later this month, a move that will drain liquidity and support the currency.

The yuan started to weaken in early May as a trade war with the US escalated and the economy slowed. Bears got a new catalyst to build short bets on Friday, when the central bank’s chief Yi Gang hinted that China doesn’t have a red line for the yuan and it may further ease monetary policy. The exchange rate slid to the weakest this year Monday, sparking debate on whether or when China will allow it to break the key 7 level for the first time since the financial crisis.

‘Forget about the psychological 7 level,’ said Khoon Goh, head of research at Australia & New Zealand Banking Group Ltd., adding that the fixing will stay stronger than 6.9 before the Group of 20 summit. ‘Today’s fixing sends a clear message that the authorities are still intent on keeping the yuan stable, and have no desire to see it weaken further.’

US President Donald Trump and his Chinese counterpart Xi Jinping may meet at the G-20 summit in Osaka this month. Traders will be closely watching the gathering to gauge the outlook for trade negotiations and the yuan.

‘We expect the Chinese authorities to continue defend 7 in the foreseeable future,’ said Becky Liu, head of China macro strategy at Standard Chartered Plc, adding that a negative outcome at the G-20 summit wouldn’t warrant a change in this stance. ‘The PBOC may step up the size and frequency of bill issuance should the yuan come under greater depreciation pressures.’

The onshore yuan was heading for its first gain in five days, rising 0.24 per cent to 6.9137 per dollar as of 4:51pm in Shanghai. The offshore yuan gained 0.21 per cent.