China backs yuan to strongest level in nearly a year as US trade war hits markets

China stepped in on Wednesday to support the yuan, showing how far Beijing is willing to go to keep its currency stable as the trade war with the United States stretches ￰0￱ People’s Bank of China (PBOC) set the yuan’s reference rate at 7.0995 per dollar, its strongest level in nearly a year, crossing the key 7.1 level that officials had been defending since ￰1￱ stronger fixing pushed the offshore yuan higher and slightly weakened the US dollar, proving that China is not backing off from its defense line. However, the latest decision breaks from what Beijing did during the last trade ￰2￱ that time, it allowed the yuan to weaken to soften the impact of American tariffs.

Now, officials are keeping the yuan steady to limit financial outflows, calm investor nerves, and back their long-running plan to make the currency more ￰3￱ to Bloomberg, analysts said the decision showed clear intent. “A fix below 7.10 sends a strong message of strength,” said Fiona Lim, senior foreign-exchange analyst at Malayan Banking in Singapore. “A strong yuan is symbolic of how China is in a position of strength for any negotiations or tit-for-tat escalations.” China changes its strategy as tensions rise The stronger reference rate fits into a clear ￰4￱ at Goldman Sachs, including Danny Suwanapruti and Xinquan Chen, said China’s latest actions are “markedly different” from its earlier ￰5￱ of relying on a weaker currency to absorb shocks, policymakers are using monetary and fiscal measures to deal with economic pressure.

“We continue to expect dollar-yuan to grind lower below 7,” Goldman Sachs analysts, including Danny Suwanapruti wrote in a note. “This yuan strengthening reflects a warranted appreciation after very significant real depreciation in recent years.” Under the current system, the PBOC only allows the yuan to move 2% up or down from the daily reference rate. Wednesday’s stronger fixing was meant to stop any speculation that the currency might slide further as trade tensions flared ￰6￱ tension intensified when President Donald Trump targeted cooking oil exports as his latest weapon after Beijing refused to buy US soybeans in response to sanctions placed on the American units of a South Korean shipping company, as Cryptopolitan ￰7￱ Liu, head of China macro strategy at Standard Chartered, said the PBOC’s action was purely about keeping markets ￰8￱ added that: “It will anchor yuan expectations and avoid a substantial rebound in volatility ahead of possibly more US-China ￰9￱ extremely strong strengthening bias in the recent fixing looks like a precautionary move to prevent a sharp move in markets, not an effort to smooth trade talks.” Beijing braces for key political meeting and economic headwinds China’s Communist Party will hold a closed-door meeting from October 20 to 23, where it will review China’s five-year development plan, and officials are known to tighten market controls before such events to prevent ￰10￱ move to defend the yuan fits with that strategy.

Still, the currency’s gains could hit a ￰11￱ Cheung, senior emerging markets strategist at Credit Agricole CIB in Hong Kong, said his team expects “a ranged dollar-yuan” because both sides seem focused on avoiding big ￰12￱ pressure inside China and weaker domestic demand are likely to limit how far the yuan can ￰13￱ think the central bank’s changes are too small to make a real ￰14￱ traders argue that the PBOC’s adjustments aren’t big enough to suggest Beijing wants meaningful ￰15￱ point out that ongoing trade tensions, the uncertain path of the US dollar, and China’s lower interest rates compared to the US are still serious ￰16￱ at Bank of America said investors are waiting for weaker inflation numbers and new fiscal stimulus before taking bigger positions in the ￰17￱ expect the yuan to end this year at 7.1 per dollar before appreciating to 6.7 in March ￰18￱ $50 free to trade crypto when you sign up to Bybit now