China’s yuan firmed against the US currency on Tuesday, underpinned by suspected dollar sales by state banks on behalf of the central bank.
“Some state-owned banks sold dollars after a bout of dollar purchases by companies,’’ said a trader at a foreign bank in Shanghai.
“The central bank appears to want to keep the yuan stable to increase the opportunity that it could be included in the SDR (Special Drawing Rights) basket,’’ the trader said.
The People’s Bank of China set the midpoint rate at 6.3494 per dollar prior to market open, 0.09 per cent firmer than the previous fix 6.3549. The spot market opened at 6.3490 per dollar and was changing hands at 6.3513 at midday, 0.03 per cent firmer than the previous close.
The International Monetary Fund’s executive board is scheduled to decide in November whether to put the yuan on the lender’s benchmark currency basket, known as SDR, and a key factor will be the yuan’s performance against a checklist of technical criteria.
Including the Chinese currency in the SDR basket would give it an official seal of approval, eventually leading to global demand worth more than $500 billion in coming years, currency analysts say.
The offshore yuan was more volatile and was 0.52 percent, or 350 pips, weaker than the onshore spot rate at 6.3846 per dollar by midday.
“The spread between the onshore and offshore yuan is expected to be between 200 and 500 pips in the near future,” said an offshore trader at an Asian bank in Hong Kong.