China's yuan rose to a 19-year high after the central bank bolstered the currency's reference rate as U.S. holds the second presidential debate.
The People's Bank of China raised the fixing by 0.12 percent to 6.3028 per dollar, the strongest since June 20. The American presidential election and U.S. Deputy Secretary of State William Burns' visit to China have contributed to recent appreciation in the yuan, central-bank publication Financial News said in a commentary today. The yuan has advanced 2.3 percent since reaching this year's low of 6.3967 on July 25. The Chinese Communist Party will hold a congress starting Nov. 8 that may feature a once-a-decade leadership transition.
“China wants to ease the heat on yuan's exchange rate as the U.S. presidential elections are looming,” said Banny Lam, a Hong Kong-based chief economist at CCB International Securities Ltd., a unit of China's second-largest bank. “There are also bets that China will step up stimulus after the congress. Yet the yuan could soften when these factors fade.”
The yuan rose 0.15 percent to close at 6.2545 against the greenback in Shanghai, according to China Foreign Exchange Trade System. The currency touched 6.2525 earlier, the strongest level since the government unified the official and market exchange rates at the end of 1993. The spot rate can trade as much as 1 percent on either side of the fixing.
Eoin Treacy's view Despite a major trend inconsistency in the summer, represented by a sustained decline below the 200-day MA, the Yuan has rallied impressively over the last six weeks to post its strongest level since the 1994 devaluation. While the reasons for this strength are debatable, a clear upward dynamic would be required to signal a return to US Dollar dominance.
While the Yuan is hitting headlines, it is by no means the only Asian currency hitting new highs. The Singapore Dollar, Taiwan Dollar, Korean Won and Philippine Peso all hit new highs today. The Asian Dollar Index has rallied impressively over the last couple of months and has returned to test the upper side of the yearlong range. This may represent a potential area of resistance but a clear downward dynamic would be required to check momentum. The relative strength of Asian currencies acts as a tailwind for the region's stock markets.