By Reuters
Copyright brecorder
HONG KONG: The yuan touched a new 11-month peak against the US dollar on Thursday, buoyed as Chinese equities continued to climb and by expectations of an imminent US Federal Reserve rate cut next week.
It strengthened to 7.1160 per dollar, the strongest level since November 5, 2024, before edging 0.01% lower to 7.1216 as of 0305 GMT.
Offshore yuan traded at 7.1191 yuan per dollar, up about 0.03% in Asian trade.
Chinese stocks have been on a heady bull run, fuelled by record sums of leveraged bets, optimism about AI and the government’s campaign against excessive competition in many industries.
The Shanghai Composite Index rose 1.1% on Thursday and is up 27% since a low in April, not far from a 10-year high marked on August 26.
China’s central bank has since May set lower fixings, which suggests that it is allowing some appreciation, traders and analysts said.
“Improved sentiment on Chinese equities and increased onshore USD selling, alongside the PBoC’s lower USDCNY fixing, have supported CNY strength recently,” analysts at LGT Private Banking Asia said in a client note.
They added that a weak dollar environment should continue to lend support to the Chinese currency, which has strengthened 2.5% against the greenback this year.
Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.1034 per dollar, 123 pips firmer than a Reuters’ estimate and only a whisker weaker than the 11-month high seen on Monday.
Spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
Based on Thursday’s official guidance, the yuan is allowed to drop as far as 7.2455.
The dollar’s six-currency index was steady on Thursday following an unexpected drop in US producer prices in August, bolstering expectations that the Fed may resume its rate-cutting cycle next week.
Traders are now pricing in an 8% chance of a 50 basis points (bps) rate cut next week, while a cut of at least 25 bps is almost fully priced in, according to the CME Group’s FedWatch tool.
