Chinese Yuan Boosts to near 4-month High on Weak Dollar

The Chinese yuan boosted to its strongest against the US dollar in nearly 4 months on Tuesday, thanks to a stronger fixing and broad dollar weakness.

Against a basket of 6 major currencies, the dollar’s index stood at 92.162. On Friday, it dropped to 92.080, the weakest level since September 22.

This made the dollar drop to its lowest in more than 3 months, hitting its steepest annual drop since 2003 due to doubts over the durability of a pick-up in US economic growth in the wake of the country’s tax overhaul.

In the Chinese currency, the central parity rate of the Chinese currency renminbi was set the midpoint rate at 263 pips to 6.5079 against the US dollar, or 0.4% firmer than the previous fix of 6.5342 on Friday and was the firmest since September 11, according to the China Foreign Exchange Trade System.

In China’s sport foreign exchange market, the yuan is allowed to rise or fall by 2% from the central parity rate each trading day.

Further, the onshore yuan opened at 6.5030 per dollar, breaching psychologically important 6.5% per dollar level, and boosted as much as 6.4922 at one point, which was the firmest since September 8.

At mid-day trading, the onshore spot yuan was trading at 6.5012, 57 pips firmer than the previous late session close, and 0.10% stronger than the midpoint. Its offshore counterpart was trading 1 pip higher than the onshore spot at 6.5011 per dollar at mid-day.

The gains in the yuan in the past 2 weeks were mainly driven by “thin liquidity and a weaker dollar,” according to Tommy Xie, economist at OCBC Bank in Singapore.

The euro rose 0.1% at $1.2018, after it surged 14% in 2017 for its best annual performance since 2003. In the last week of 2017, the euro had soared 1.1%, putting it back within sight of a 2-1/2 year peak of $1.2092 set in September.

On other currency news, the Taiwan dollar presented the biggest percentage gainer, with a rise of 0.8% against the dollar to a more than 4-year high.

“The Taiwan dollar last Friday hit a similar level but pared gains to close flat … what we’re seeing today is just a rebound, which is not a surprise,” said Gao Qi, Asia FX strategist at Scotiabank.

In South Korea, the won was also stronger against the dollar after North Korean leader Kim Jong-un offered an olive branch to South Korea, saying he was open to dialogue.

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