The Chinese yuan was trading higher against the dollar on Wednesday, continuing a recovery that began the previous afternoon after China’s central bank chief pledged to keep the exchange rate “basically stable.”
The yuan CNYUSD, +0.1523% had advanced as much as 0.7% against the dollar shortly after trading began in mainland China on Wednesday, but it then gave up some of its gain. In recent action, one dollar bought 6.6315 yuan, compared with 6.6672 yuan on Tuesday.
In the offshore market, the Chinese currency CNHUSD, +0.3236% also was strengthening, with one dollar at 6.6453 yuan. That meant the yuan’s value was weaker in trading hubs such as Hong Kong than on the mainland.
The yuan’s reversal came after Yi Gang, governor of the People’s Bank of China, said Tuesday the central bank is “closely monitoring” recent fluctuations in the currency market and will use its “ample” monetary tools to keep the yuan stable.
The Chinese currency has rallied from its intraday trough against the dollar on Tuesday, which marked the yuan’s weakest level in nearly a year. It tumbled 3.4% against the buck in June in one of its worst months on record.
Demand for options that protect investors against swings in the dollar against the offshore yuan shot up after the yuan’s latest moves. One-month implied volatility for the dollar against the yuan, which is based on prices for such protective currency options, has surged to near its highest level since February and is almost double its five-year average, according to Thomson Reuters.
Investors traded a record number of futures contracts tied to the dollar against the offshore yuan on Hong Kong’s exchange on Tuesday, representing a notional value of $2.2 billion, according to Hong Kong Exchanges & Clearing Ltd.
The pace of the yuan’s swoon through Tuesday has made some investors nervous.
Stuart Ritson, head of Asian rates and FX at Aviva Investors in Singapore, said he has chosen to bet on declines in other Asian currencies that are sensitive to a deterioration in global trade and slowing Chinese growth, rather than the yuan.
“We’ve actually preferred to use proxies, like the Taiwan dollar and Korean won, at this point in time,” he said. “The main reason is the sharpness of the move recently,” he said, referring to the yuan.
