The Chinese yuan surged to its strongest level in over 16 months on Wednesday, following the announcement of a series of stimulus measures from PBOC officials aimed at stabilising the country’s slowing economy.
By 2:35 pm AEST (4:35 am GMT) the offshore yuan briefly reached 6.9946 per U.S. dollar, the highest since May 2023.
Chinese policymakers, however, must carefully manage the yuan's appreciation to avoid harming the export sector, which remains vulnerable amid the fragile economic conditions.
The onshore yuan is permitted to fluctuate only 2% above or below the midpoint rate set by the People's Bank of China (PBOC).
The offshore yuan, traded outside mainland China in markets like Hong Kong and New York, is subject to fewer restrictions and influenced by market supply and demand.
On Tuesday, the PBOC made a rare public announcement regarding its monetary policy. Governor Pan Gongsheng revealed a 50 basis point cut to the reserve requirement ratio (RRR), reducing the amount of cash that banks must hold.
Additionally, the central bank cut the 7-day repo rate by 0.2%.
China’s bond market rallied following the PBOC’s announcement, with yields on 10-year and 30-year bonds hitting record lows, a trend that typically strengthens a country’s currency.
As of Wednesday, 10-year bond yields rose by 3 basis points to 2.071%, while 30-year bond yields inched up to 2.183%.