Chinese regulator says will avoid disorderly FX fluctuations as yuan rallies

7 Jan, 2021 10:25
source: Reuters

Singularity Financial Hong Kong January 7, 2021 – Chinese regulator says will avoid disorderly FX fluctuations as yuan rallies (Source: Reuters)

China’s foreign exchange regulator said on Wednesday it will avoid disorderly fluctuations in the currency market, after sharp gains in the yuan at the start of the year.

The remarks by the State Administration of Foreign Exchange (SAFE) came after the yuan shot up more than 1% against the U.S. dollar this week, building on a near 7% rise in 2020.

Strong gains in the yuan have been underpinned by a weaker dollar, the widening yield gap between Chinese bonds and those in major developed economies and China’s rapid recovery from the coronavirus pandemic.

But the rapid rises have prompted policymakers to announce a slew of measures recently to slow down the pace of appreciation. Markets believe the moves signal that authorities have become increasingly uncomfortable with the strength in the currency, which usually keeps to a wafer-thin trading range.

On Tuesday evening, the People’s Bank of China (PBOC) announced it would raise its macro prudential adjustment coefficient for domestic firms making overseas loans, a move believed to allow some capital outflows in an orderly manner.

SAFE also said it will strengthen monitoring and evaluation of currency market conditions, paying close attention to the impact of external shocks including the pandemic, according to the statement published on its website.

It added that it will support financial institutions to introduce more forex derivatives, improve capital management of foreign institutions’ onshore equity and bond issuance, and strengthen management of market expectations.