SHANGHAI, May 10 (Reuters) - China’s yuan ended the domestic session at a near three-year high against the dollar on Monday, underpinned by broad dollar weakness, as investors assessed the implications for monetary policy of a disappointing U.S. employment report.
The currency’s strength is fuelling speculation the central bank may step in via state banks to cool its rapid ascent, traders said.
China’s onshore spot yuan finished the domestic trading session at 6.4173 per dollar, its strongest such close since June 15, 2018.
Prior to market opening, the People’s Bank of China (PBOC) lifted the midpoint rate by the most since early January to 6.4425 per dollar, 253 pips firmer than the previous fix of 6.4678.
Several traders said the market refrained from testing new highs to gauge the central bank’s position on the sudden gains, after the spot price on Monday afternoon breached the year-to-date high of 6.4245 hit in January.
Some investors said markets would pay close attention to Tuesday’s midpoint fixing for any signs the PBOC is uneasy with the yuan’s rapid gains.
Some were afraid state-run banks could be directed to step in to rein in the currency’s strength, said a trader at a foreign bank.
Traders said they had not seen any attempt by state bank in the onshore spot market to slow the pace of the rally as evident in late 2020. Major state-owned banks often act as agents for the PBOC in currency markets, but they also trade on their own behalf.
“It appears that the PBOC holds a cautious view on any resurgent RMB appreciation pressure driven by the new USD sell-off, in particular with the slowing China recovery momentum,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
“The PBOC seems to be comfortable with the CNY range trading between 6.4 and 6.6 level,” Cheung said.
The PBOC has introduced multiple measures in late 2020 and earlier this year to stem the rise of the currency by reducing capital inflows.
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong)