China's yuan recovered against the dollar yesterday, but markets remained jittery amid the worsening Sino-US trade dispute and after the central bank set its weakest guidance for the currency in nearly a year.
The yuan settled at 6.6679 at the close yesterday, slightly firmer than Wednesday's late onshore close of 6.6750, regaining ground after crossing the key 6.7 to the dollar level in the morning session when it touched 6.7051.
In the currency market, the People's Bank of China (PBOC) set its official daily midpoint at 6.6726 per dollar, its weakest since August 18, 2017 and the biggest one-day percentage weakening of the midpoint rate since January 9, 2017. However, traders said the supply and demand for the greenback were balanced at around the 6.7 per dollar level and investors were holding off testing lows in the yuan for now.
"A weaker yuan could offset some of the negative impact from the trade war. As long as the pace of depreciation of the yuan is under control, the spot yuan rate could fall further," said a trader at a Chinese bank in Shanghai.
Several traders said the official yuan fixing yesterday was set firmer than market forecasts, a sign they interpreted as an official attempt to prevent the yuan from sinking too fast.
Qi Gao, Asia FX strategist at Scotiabank in Singapore, said the fixing was about 100 pips stronger than the market had expected, suggesting that the PBOC may have incorporated its previously suspended "counter-cyclical factor" in its midpoint calculation.
"It shows the central bank intends to stabilise the market and calm investors," said Gao, adding that "one-way speculation on the yuan's depreciation is not in Chinese authorities' interests."
Meanwhile, Xinhua News reported that profits of China's centrally-administered state-owned enterprises (SOEs) climbed 23 percent from a year earlier in the first half of 2018.
Combined profits of China's central SOEs totaled 887.79 billion yuan from January to June, according to the State-owned Assets Supervision and Administration Commission (SASAC).