Forward contracts on the yuan were up for the first time in five days after the central bank boosted its reference rate in anticipation of the Federal Reserve’s commentary later this week.
The People’s Bank of China increased the yuan’s rate by the most in five weeks prompting twelve-month non-deliverable forwards on the yuan to climb 0.14 percent to 6.6865 a dollar at 12:02 p.m. The stronger-than-expected reference rate versus the U.S. dollar may be an indication that the Chinese central bank doesn’t want the market to believe it favors a weaker yuan.
Rate Hike Not Expected
The Federal Open Market Committee isn’t expected to raise its policy rates at the two-day meeting on Wednesday, but officials may voice observations that would offer a positive market assessment for future rate increases.
Fed officials quoted a stronger dollar and decreasing global growth in March, lowering the possibility of additional rate increases in 2016. This may change, however, as the last few weeks have seen signs of stabilization in China with exports, industrial output and credit expansion all beating estimates last month.
According to Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong, “The PBOC is supporting the yuan ahead of the FOMC meeting. U.S. policy makers will likely make more optimistic comments on the prospect of a rate hike as the domestic and Chinese economies improve.”
The onshore traded yuan was 0.02 percent higher at 6.4933 against the dollar, according to China Foreign Exchange Trade System prices. The PBOC strengthened its fixing by 0.37 percent to 6.4882 on Tuesday.