(Bloomberg) -- China hasn’t budged from its line in the sand for the yuan in a month -- and market watchers don’t expect it to any time soon.
The People’s Bank of China has set its daily fixing for the yuan stronger than 6.9 per dollar for four weeks, even as the currency traded weaker than that level. Monday’s fixing was 223 pips stronger than market watchers expected, the biggest such bias since Bloomberg began releasing forecasts in August 2017. The reference rate has been set stronger than traders and analysts forecast for 13 days, the longest run since September.
“Fixings have been persistently stronger than market expectations over recent weeks and it looks as though this will continue right into the G-20,” said Mitul Kotecha, a senior emerging markets strategist at Toronto-Dominion Bank in Singapore. “Whether China will want to continue to show good faith on the onshore yuan will largely depend on whether there is progress on trade talks.”
Hao Zhou, a senior emerging markets economist at Commerzbank), and Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd., also said they expected the central bank to use the daily fixing in support of the yuan in the short term. The PBOC can continue to set the fix stronger for as long as it likes, Zhou said.
Presidents Donald Trump and Xi Jinping may meet at the Group of 20 summit in Japan this month, though Commerce Secretary Wilbur Ross downplayed the prospect for a major trade deal right away. “I think the most that will come out of the G-20 might be an agreement to actively resume talks,” Ross said in an interview Sunday with The Wall Street Journal.
In addition to setting strong fixings, Chinese officials and state media have offered support for the yuan by saying the country is able to keep the exchange rate stable. The central bank has also said it plans to sell bills in Hong Kong later this month, a move that will drain liquidity and support the yuan.
China’s currency weakened as trade tensions with the U.S. mounted. It fell to its weakest level of the year on June 10, prompting concern it could slide to 7 for the first time since the financial crisis.
The yuan traded little changed at 6.9237 a dollar as of 1:56 p.m. in Shanghai. The daily fixing was set at 6.8940 earlier in the day.