China extended its support for the yuan by setting its daily reference rate for the managed currency at a level stronger than 7.2 per dollar, as escalating trade tensions with the US add to the depreciation pressure on the yuan.
Author of the article:
You can save this article by registering for free here. Or sign-in if you have an account.
(Bloomberg) — China extended its support for the yuan by setting its daily reference rate for the managed currency at a level stronger than 7.2 per dollar, as escalating trade tensions with the US add to the depreciation pressure on the yuan.
The People’s Bank of China set the so-called fixing at 7.1693 per dollar on Wednesday as onshore markets reopened after Lunar New Year holidays. The central bank has been holding the fixing at levels stronger than 7.2 per dollar to shield the yuan from the dollar’s gains since Donald Trump won the US Presidential election in November.
Subscribe now to read the latest news in your city and across Canada.
Subscribe now to read the latest news in your city and across Canada.
Create an account or sign in to continue with your reading experience.
Create an account or sign in to continue with your reading experience.
The move signals authorities are unwilling to let the yuan weaken even as the latest tit-for-tat trade measures between the US and China weigh on the currency. Some analysts had been expecting the PBOC to let the yuan weaken in order to raise the attractiveness of Chinese exports and blunt the impact of US tariffs, a contention that’s not yet materialized.
“The status quo of yuan fixing support is consistent with the stance to avoid further escalations in China-US tensions,” said Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank Ltd. “China shows stance to preserve FX stability, which could contain capital outflow pressure.”
Goldman Sachs Group Inc. forecasts the fixing to gradually drift weaker toward 7.3 and the onshore yuan to reach 7.4 to 7.5 levels. National Australia Bank says the currency will head toward 7.5 in only a matter of time unless a trade agreement is reached with the US.
On Tuesday, China levied a tax on some products imported from the US and started a probe into Google on anti-trust law breaches, just after Washington imposed a 10% tariff on all Chinese goods.
Get the latest headlines, breaking news and columns.
By signing up you consent to receive the above newsletter from Postmedia Network Inc.
A welcome email is on its way. If you don’t see it, please check your junk folder.
The next issue of Top Stories will soon be in your inbox.
We encountered an issue signing you up. Please try again
Traders are now waiting to see if leaders of the world’s two biggest economies can quickly reach an agreement on trade. Trump said on Monday he will seek a deal with China, and that talks would take place shortly. He said on Tuesday there’s no rush to speak with Chinese President Xi Jinping and a call would take place at the appropriate time.
“A ‘good call’ can see USD/CNH trade lower and the fixing probably should matter less,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “At this point of time, the key focus is on whether there will be de-escalation, like what we’ve seen with Mexico and Canada.”
US-China trade tensions under the previous Trump presidency dragged down the yuan beyond the psychological milestone of 7 per dollar for the first time in a decade. The CSI 300 initially suffered a 32% year-long slump before staging a sharp rebound in 2019.
Wednesday’s fixing was the strongest since Nov. 8 and briefly pushed the offshore yuan up 0.1%. The onshore yuan fell 0.4% to 7.2826 per dollar in early trading as local markets reopened after a eight-day holiday.
The daily reference rate, which limits moves in the onshore yuan by 2% on either side, is the PBOC’s most frequently-used tool to manage the currency. The central bank has also been enlisting tools other than the daily fixing to calm yuan volatility.
Last month, the PBOC tweaked capital controls and vowed to crack down on market disruption after the offshore yuan came close to its record low versus the dollar. It issued record amount of yuan bills in Hong Kong to squeeze liquidity in the offshore market and discourage bearish currency bets. It also suspended government bond purchases to slow the drop in local yields and reduce depreciation pressure on the currency.
(Updates with additional comment in 8th paragraph, yuan moves in 10th)
Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.
365 Bloor Street East, Toronto, Ontario, M4W 3L4
© 2025 Financial Post, a division of Postmedia Network Inc. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.
This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.
You can manage saved articles in your account.
and save up to 100 articles!
You can manage your saved articles in your account and clicking the X located at the bottom right of the article.