China’s yuan traded past ¥7 per dollar on Thursday for the first time in over a year, with the offshore unit reaching 6.9964 and onshore settling at 7.0067, according to data from Google Finance.
The rally comes after a firmer daily reference rate set by the People’s Bank of China, which market desks read as another step in a pattern seen over recent months, with policymakers allowing gains at a measured pace while keeping tight control over daily swings.
Central bank allows gains as dollar selling builds in local markets
The yuan has surged by more than 3.8% this year, helped by a weaker US dollar, money flowing into China’s stock market rebound, and easing global tensions.
“The yuan has been bolstered by weakness in the dollar and seasonal foreign-exchange conversion by exporters,” said Wang Qing, chief macro analyst at Golden Credit Rating. “A sustained yuan gain will be helpful in increasing the appeal of China’s capital markets to foreign investors.”
Onshore markets saw active dollar selling during Thursday’s session, as traders allegedly said large Chinese banks were buying dollars around 7.006.
Offshore trading remained thin as well. Hong Kong markets were closed on Dec. 25 and Dec. 26 for public holidays, which limited liquidity during the session, traders said.
Despite the rally, some banks say the yuan still trades at low levels when compared with trade partners and domestic conditions.
Goldman Sachs Group Inc. said the currency stood about 25% below levels suggested by economic fundamentals, including China’s ongoing deflation pressures.
Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group, said the yuan is likely to stay in a 6.95 to 7 per dollar range during the first half of next year.
Property debt talks resume as Vanke bond vote reaches deadline
Currency strength has unfolded alongside renewed pressure in China’s property sector. China Vanke Co., which recently secured temporary relief on a local bond, returned to negotiations as holders of another note finished voting on a payment delay.
Investors holding a 3.7 billion yuan bond, worth about $526 million, were given until 3 p.m. Thursday to choose from six proposals seeking to push back repayment. Without approval, the developer would need to pay the bond when it falls due on Dec. 28, or within a five working day grace period, raising the risk of default.
Vanke carries about $50 billion in interest-bearing liabilities as the housing market continues to struggle with falling prices and weak demand. The latest talks followed a narrow vote that extended a grace period on a 2 billion yuan bond, even as a proposal to delay principal repayment by 12 months failed.
This week, S&P Global Ratings cut Vanke’s long-term issuer rating to selective default, saying the grace-period extension counted as a distressed debt restructuring.
Some offshore bondholders have been contacted by Houlihan Lokey Inc. and PJT Partners, firms often involved before formal creditor groups are set up to handle restructuring talks.
At the policy level, officials continue to adjust housing rules while avoiding direct rescues of individual firms.
Beijing city said it will ease home purchase rules for non-residents to support sales. The capital will cut the number of years buyers must have paid income tax or social security before they can buy a home, based on a Wednesday announcement.
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