Global Market: China's yuan hits more than four-year high against dollar

The currency's gains came as markets looked ahead to a series of major central bank meetings next week, with the US Federal Reserve, Bank of Japan and European Central Bank widely expected to keep interest rates unchanged while maintaining a hawkish policy stance.

The People's Bank of China (PBOC) set the yuan's midpoint rate at 6.7195 per dollar before the market opened on Thursday. The fixing was 439 pips weaker than a Reuters estimate of 6.6756, marking the largest deviation on the weaker side since September 23.

China allows its onshore yuan to trade within a 2% band on either side of the daily midpoint set by the central bank.

The PBOC has gradually strengthened its daily guidance for the yuan this year, although the fixings have remained weaker than market expectations. Traders and analysts said the approach suggested that the central bank was seeking to moderate the pace of the currency's appreciation rather than reverse its upward trend, according to Reuters.

Maybank analysts said the central bank's fixing stance indicated that it was leaning against the speed of the dollar's decline against the yuan. However, the limited gap between the spot rate and the official midpoint suggested that authorities were allowing the currency's current direction to continue.

In the onshore market, the yuan touched 6.6740 per dollar, its strongest level since June 2022, before trading at 6.6749 as of 0238 GMT, Reuters reported. The offshore yuan stood at 6.6744 per dollar, up around 0.01% in Asian trading.

Trading activity remained subdued, with onshore spot rates moving within a narrow range of about 20 pips and turnover declining to around $10.6 billion.

Strong exports and sustained foreign exchange settlement have provided support for the Chinese currency this year, according to currency traders cited by Reuters. However, the yield differential between China and the United States, close to its widest level on record, has kept investors focused on the outlook for US monetary policy.

Traders are pricing in only a small chance of a Federal Reserve rate hike at next week's meeting, while the next increase is expected in December, according to Reuters.

China Merchants Bank analysts said continued conversion of export earnings into yuan could help the currency remain stable or appreciate further, even if the US dollar index remains resilient.

The yuan's near-term direction is likely to depend on the balance between sustained domestic currency demand, the PBOC's efforts to manage the pace of appreciation and signals from major central banks on the future path of interest rates.