Yuan stays near four-year high as PBOC keeps its fixing rate on the weak side

what happened

The Chinese currency traded little changed close to a four-year peak on Tuesday, according to Reuters. The People's Bank of China fixed the midpoint at 6.7171 per dollar, weaker than the previous session and 440 pips below the Reuters estimate. The authority has been lifting its daily guidance step by step, yet for close to a year it has set the level below market forecasts, a move traders read as a way to control how fast the currency rises.

The spot yuan changed hands at 6.6684 per dollar, while the offshore rate stood at 6.6680. The currency has gained 0.5% this month and 4.9% year to date, supported by corporate conversion demand as exports grow strongly. The dollar index against six currencies edged up 0.029% to 102.05. Investors are waiting for this week's decisions from central banks in the United States, Europe and Japan.

why it matters

For markets the key point is the mechanism: Beijing manages the yuan through the daily fixing rather than hard limits, which lets it slow appreciation without sharp jumps. Chris Weston, head of research at Pepperstone, expects one or two weeks of very tight-range trading and believes the PBOC is comfortable with where the currency sits now.

market impact

Yuan: PBOC slows appreciation via a weaker fixing, limiting moves in USD/CNY and CNH

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