China’s yuan: investors reassured central bank has ammunition to support currency ahead of Janet Yellen visit

The People’s Bank of China (PBOC) fuelled speculation for imminent policy support by setting the daily fixing for the yuan stronger than expected on Thursday

Commentary in the central bank-backed Financial News said China’s economic recovery will continue to improve and yuan-denominated assets remain attractive

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US Treasury Secretary Janet Yellen waves as she arrives at Beijing Capital International Airport. Photo: AP

Published: 6:30pm, 6 Jul 2023Updated: 10:11am, 7 Jul 2023

China has ample tools to stabilise the foreign exchange market even if there is “panic” in the outlook for the yuan, according to a commentary in the Chinese central bank-backed Financial News, as the currency extended its fall against the US dollar.

The People’s Bank of China (PBOC) set the daily fixing for the yuan stronger than expected at 7.2098 against the US dollar on Thursday, fuelling speculation for imminent policy support from Beijing.

The fixing limits the onshore yuan’s moves by 2 per cent on either side and is often used by market participants to gauge the official stance towards the foreign exchange market.

The yuan has fallen by 4.7 per cent against the US dollar since the start of the year.

The commentary, published late on Wednesday, reiterated Beijing’s stance that China’s economic recovery will continue to improve and yuan-denominated assets remain attractive to investors.

It was also published the day before US Treasury Secretary Janet Yellen arrived to begin a four-day visit to China on Thursday. She is expected to meet senior officials, according to China’s Ministry of Finance.

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The tools available to China include the foreign exchange risk reserves ratio, banks’ foreign exchange deposit reserve ratio, the countercyclical factor used in determining the PBOC’s daily reference rate and the adjustment of macroprudential factors for cross-border financing, the commentary said.