Yuan Holds Steady as Seasonal FX Sales Offset Dollar Strength

what happened

The Chinese yuan was little changed against the dollar on Monday, as a seasonal rise in foreign exchange settlements by companies offset the greenback's strength. According to Reuters, the dollar found support after US job growth picked up in October and the unemployment rate fell. The data strengthened bets that the Federal Reserve will raise rates in December.

The onshore yuan edged up 0.03% to 6.6746 per dollar as of 0255 GMT, while the offshore rate was roughly flat at 6.6726. The People's Bank of China set the midpoint at 6.7188, its weakest since October 22 and 389 pips softer than a Reuters estimate. A trader at a Chinese bank said companies were using the recent yuan pullback to sell some of their year-end dollar revenue early, after the central bank last week raised the foreign exchange reserve requirement for financial institutions. The market read the move as an effort to slow the yuan's gains.

why it matters

The move matters because Beijing is restraining yuan appreciation. The CFETS basket index rose to a 52-month high of 103.98 and is up more than 6% year-to-date, by Reuters calculations. Producer inflation accelerated to its fastest pace in nearly four and a half years, yet the yuan barely reacted to that data.

market impact

Yuan and Asian currencies: seasonal FX sales cap the yuan's rise against the dollar

• ▲Dollar pressure up — strong jobs data reinforces bets on a Fed rate hike in December
• ↔Yuan (USD/CNY) mixed — seasonal exporter conversions offset dollar strength and PBOC curbs on gains

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