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US dollar index soars, yuan drops below 6.52

(ATF) The US dollar index soared on Wednesday March 24, causing the RMB and yuan exchange rates to both fall below 6.52 to the USD.

Speeches made by US Treasury Secretary Janet Yellen and Federal Reserve chairman Jerome Powell on March 23, US local time, stimulated the market’s risk aversion and led to the dollar index to break through the 92 mark and rise to around 92.40.

Powell said in testimony before the House of Representatives’ Financial Services Committee that inflation is expected to rise, but not to get out of control. Yellen also said that after the epidemic is brought under more control, national economic plans would shift to infrastructure investment and tax increases.

Under the influence of the rising dollar index, central parity of the yuan to the USD for the spot exchange rate and the offshore yuan fell below the 6.52 mark on March 24.

According to data from the China Foreign Exchange Trading Centre, parity of the yuan against the dollar was put at 6.5228, a depreciation of 192 basis points.

That led the spot exchange rate of the yuan to the dollar to fall quickly below the 6.52 mark after opening at 6.5180. It’s lowest depreciation was to 6.5263, a drop of more than 150 basis points from the official closing price on the previous trading day.

And reflecting the expectation of international investors, the offshore yuan exchange rate against the dollar also fell below the 6.52 mark. It had an intraday low of 6.5269.

“The market is still bullish on the US dollar, but from the current foreign exchange settlement and sales of customers, it has not had a major impact on the yuan spot exchange rate. In the short term, it will still fluctuate based on the US dollar index,” a foreign exchange dealer at a state-owned bank in Shanghai said.

PBOC in 10bn-yuan reverse repo operation

Meanwhile, the People’s Bank of China launched a 7-day reverse repurchase operation totalling 10 billion yuan on the 24th. 

The central bank issued an announcement stating that in order to maintain reasonable and sufficient liquidity in the banking system, a 10 billion yuan reverse repurchase operation was carried out through interest rate bidding. It will have a period of 7 days and the interest rate was 2.2%, which was the same as the previous time.

The PBoC’s reverse repurchase operation volume has remained stable since March, with an average of 10 billion yuan of 7-day reverse repo operations carried out on each trading day, and hedges equal to the amount of reverse repurchase maturities have been achieved on the last 13 trading days.

The Shanghai Interbank Offered Rate (Shibor) released on the 24th showed that interest rates for various maturities have fallen across the board. Among them, the overnight, 7-day, and 14-day interest rates were 1.822%, 1.992%, and 2.429%, respectively, down 15.4, 17.6, and 2.3 basis points from the previous trading day; the one-year interest rate was 3.09%, which was higher.

Chris Gill

With over 30 years reporting on China, Gill offers a daily digest of what is happening in the PRC.

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