Investors scrutinize proposed change in calculation of central parity rate
The yuan's central parity rate reached 6.7935 against the U.S. dollar on Monday, up 135 basis points compared with the previous trading day and the highest level in more than half a year, according to data released by the People's Bank of China (PBOC), the central bank.
The yuan's central parity rate has now risen for four consecutive days.
As of 4:55 p.m. on Monday Beijing time, the offshore yuan was down by 0.07 percent at 6.7790, while the onshore yuan was up 0.1 percent at 6.8018.
Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, told the Global Times on Monday that one reason for the stronger yuan has been the weakening U.S. dollar in recent days. "The weakening U.S. dollar has been exerting upward pressure on the yuan," he noted.
The U.S. Dollar Index was down 0.11 percent at 96.71 as of 5:25 pm Beijing time on Monday.
Xi also noted that the yuan had depreciated steeply against the U.S. dollar in the past two years. When it fell close to 7 but failed to weaken further, a consensus was reached that the currency had bottomed out. That's when investors started to buy the yuan, causing the Chinese currency to rebound.
According to Xi, the fact that the government is amending the central parity rate system has also been "magnified" by the market, causing the yuan to edge up. "Nowadays, the currency market is more often considered a financial asset and investors are always sensitive to factors that may affect the yuan," he noted.
Chinese currency authorities are considering introducing contra-cyclical factors into the yuan's central parity exchange rate mechanism against the dollar so the mechanism better reflects the state of China's economy, the China Foreign Exchange Trade System said in an online statement posted on June 2. This was read by the market as a government move to help the yuan offset its current depreciation pressure.
But Xie Yaxuan, a senior economist with China Merchants Securities, said in a note sent to the Global Times on Monday that the influence of contra-cyclical factors on the yuan's trend should be subject to further observation.
Xi forecast that the yuan will be "stable" for the rest of this year.
