Yuan eases after China tweaks fixing formula to rein in strength


The yuan eased against the dollar on Wednesday after some banks tweaked a methodology for fixing the yuan's daily midpoint, a fresh sign that Beijing may be attempting to slow the pace of the rally in the Chinese currency.

SHANGHAI, Oct 28 (Reuters) - The yuan eased against the dollar on Wednesday after some banks tweaked a methodology for fixing the yuan's daily midpoint, a fresh sign that Beijing may be attempting to slow the pace of the rally in the Chinese currency.

The yuan has gained more than 6% against the dollar since late May, underpinned by improving economic fundamentals and rising capital inflows. But a currency that strengthened too much could hurt Chinese exporters.

Chinese banks have suspended the use of a counter-cyclical factor in the fixing formula, a tool used to influence the value of the yuan, the country's currency trading system said on Tuesday.

Analysts said the latest move suggested Beijing policymakers might want to see two-way volatilities in the yuan. The counter-cyclical factor, first introduced in 2017 and meant to reduce price swings, tended to be asymmetric and was mostly deployed to counter depreciation pressure, rather than appreciation pressure.

"(Suspending the use of the factor) won't divert the yuan's long-term broad trend and direction," said a trader at a foreign bank, expecting the market to take a breather from its rally to digest the policy signal before resuming appreciation.

In the spot market, onshore yuan CNY=CFXS opened at 6.7140 per dollar and was changing hands at 6.7094 at midday, 49 pips weaker than the previous late session close.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at a near two-week low of 6.7195 per dollar, 206 pips or 0.3% weaker than the previous fix of 6.6989.

Several traders said the market was not too surprised at the tweaks in the fixing formula, as many had already muted the counter-cyclical factor in their own fixing models.

Zhou Hao, an economist at Commerzbank, noted this was the second time this month that Chinese authorities have rolled out measures to curb the yuan's appreciation.

"The removal of the counter-cyclical factor, from a pure technical perspective, should have very small impact on USD/CNY fixing rates," he said in a note.

"Therefore, it appears that the rapid CNY appreciation particularly against the currency basket is not favoured by the authorities. That said, the CNY index is likely to see some moderation in the foreseeable future, but the spot USD/CNY rates will be still dependent on the economic and dollar outlook."

Earlier this month, the PBOC lowered the reserve requirement ratio for financial institutions when conducting some foreign exchange forwards trading to zero earlier this month. The move effectively lowered the cost of shorting the yuan.

The global dollar index =USD fell to 93.128 at midday, when the offshore yuan CNH=D3 traded at 6.7075 per dollar.

The yuan market at 0400 GMT:






PBOC midpoint CNY=SAEC




Spot yuan CNY=CFXS




Divergence from midpoint*


Spot change YTD


Spot change since 2005 revaluation


Key indexes:





Thomson Reuters/HKEX CNH index




Dollar index




*Divergence of the dollar/yuan exchange rate. A negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2% from the official midpoint rate it sets each morning.




Difference from onshore

Offshore spot yuan CNH= *



Offshore non-deliverable forwards CNY1YNDFOR= **



*Premium for offshore spot over onshore CNY=CFXS

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Kenneth Maxwell)

((winni.zhou@thomsonreuters.com; +86 21 2083 0100; Reuters Messaging: winni.zhou.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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