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April 29, 2017

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Yuan continues strong showing against dollar

The yuan continued its strength against the dollar on Thursday, following fresh remarks of a senior official with the central bank that the currency would not see substantial fluctuation.

Before the market opened, the central bank set the central parity rate at 6.8629 per dollar on Thursday, edging up for the fourth consecutive day this week.

The yuan can be traded at 2 percent up or down from the reference rate in the market.

Zhu Jun, head of the international department at the central bank, dismissed the likelihood of sustained depreciation of the yuan in an interview with China Securities Journal on Wednesday.

She said the yuan is not likely to see any major fluctuation because the nation's healthy international payments, mainly supported by the sustained current account surplus, would back up the currency's fluctuation within a reasonable range.

As for capital accounts that are mainly driven by market speculation, she said an expected narrowing of the difference between foreign direct investment and outbound direct investment would help ease market concerns about a sharp slide of the currency.

Data from the China Foreign Exchange Trade System showed that the yuan has gone up about 1.1 percent against the dollar so far this year.

While commenting on the impact from the United States, Zhu said she did not see a major likelihood of a sustained strong US dollar.

"Market expectations for sustained depreciation of the yuan are expected to cool down" after US President Donald Trump gets all of his Cabinet choices confirmed, she said.

Recent moves by the central bank show that it has no intention of stabilizing the currency through strong intervention, such as propping up the currency by raising interest rates.

The central bank has turned to using financial tools such as easing short-term and medium-term lending to manage liquidity.

Yi Gang, vice-governor of the central bank, said at the annual meeting of the Chinese Economists 50 Forum on Wednesday that China would maintain prudent monetary policy.

"Prudent monetary policy means that it would not be too tight or loose," he said.

Zhao Xueqing, an economist with the International Research Institute of the Bank of China, said strong economic fundamentals would support the yuan in the long run. "Signs of ticking up showed in the first month of the year," she added, referring to improved manufacturing activity.

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