SHANGHAI (Reuters) - China’s yuan firmed against the greenback on Tuesday, as the central bank set a stronger midpoint following an overnight retreat in the dollar index.
The People’s Bank of China set the midpoint rate at 6.8957 per dollar prior to the market open, firmer than the previous fix of 6.9042.
In spot market trading, the yuan opened at 6.9036 per dollar and was changing hands at 6.9034 at midday, 16 pips higher than the previous late session close.
The dollar was little changed in Asian trading on Tuesday following the previous session’s decline, as concerns over tensions with North Korea and Syria weighed on U.S. Treasury yields and offset expectations of U.S. interest rate hikes.
The yuan has been fluctuating within a narrow range against the dollar this year, after slumping 6.5 percent in 2016.
Like many other emerging market currencies, it has benefited from an unexpected retreat in the dollar in recent months, which along with tighter Chinese capital controls has helped to staunch capital outflows and expectations of further depreciation.
Indeed, in its latest yuan report, Macquarie Capital Ltd forecast the yuan would end this year at 6.9 against the dollar, little changed from where it ended in 2016.
Following a vicious cycle of outflows and depreciation, “the government substantially tightened capital controls from the second half of 2016, which has largely worked. Meanwhile, foreign money has been returning ... via FDI and bond investments,” Macquarie analyst Larry Hu wrote.
“A harder task is how to restart RMB internationalization, which was disrupted by capital outflows three years ago.”
Underscoring such concerns, Chinese government debt
futures in Hong Kong - the latest effort to promote global use of the yuan - got off to a slow start on Monday as
offshore investors grappled with some operational issues
and contract limits.
However, most currency strategists surveyed by Reuters earlier this month predict the yuan will weaken through the 7 level by late 2017 and fall further to 7.10 in a year as the dollar regains its footing.
Reporting by Samuel Shen and John Ruwitch; Editing by Kim Coghill