SHANGHAI, Oct 21 (Reuters) - The yuan advanced further to
end the domestic session at a more than two-year high against
the dollar on Wednesday, led by firmer central bank guidance and
recent data showing a sustained recovery in the world's
The onshore yuan opened at 6.6699 per dollar and
finished its domestic trading session at 6.6575, strongest such
close since July 10, 2018.
Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.6781 per dollar, 149 pips
or 0.22% firmer than the previous fix of 6.6930 and the
strongest guidance since July 16, 2018.
Traders and analysts said Wednesday's stronger official
fixing largely matched market projections and drove the spot
"The yuan continues to strengthen due to its superior
economic backdrop relative to other currency trades," Stephen
Innes, chief global markets strategist at Axi, said in a note.
"The better retail sales data for September continues to
resonate and signals that domestic demand is holding up."
Official data released this week showed China's economic
recovery accelerated in the third quarter as consumers shook off
their coronavirus caution.
China's Vice Premier Liu He said the economy will very
likely achieve positive growth this year, adding that China's
prudent monetary policy should be kept appropriate and flexible,
and liquidity reasonably ample.
Ming Ming, chief analyst at Citic Securities, attributed
recent yuan strength to changes in Sino-U.S. relations, as
differences between economic fundamentals, a softer dollar and
disturbances from the U.S. presidential election all supported
A trader at a foreign bank said the yuan could march towards
6.6 per dollar level in the near term if authorities do not step
in. Several currency traders also noted how far the yuan could
strengthen largely depended on the central bank's stance.
"Yuan appreciation could have a contractionary effect on the
economy, the central bank apparently does not want to see too
rapid a rise in the exchange rate," said Xie Yaxuan, chief macro
analyst at China Merchants Securities.
"Although the central bank avoids direct participation in
the FX market, it can still affect supply and demand of yuan and
dollars through market-based methods."
A second trader at a Chinese bank said he received rising
number of client queries to trim dollar positions, while those
who wanted dollars were holding back.
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam
Holmes, Simon Cameron-Moore and Rashmi Aich)