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China Maintains Yuan Defense After Currency Nears Red Line

(Bloomberg) — China stuck to a pattern of keeping yuan weakness contained as pressure from a resilient dollar and poor investor sentiment pushes it toward a policy red line.

The People’s Bank of China kept its daily reference rate for the managed currency broadly unchanged, implying to traders that yuan stability is key. China sets the so-called fixing at 9:15 a.m. local time, around which the currency is then permitted to trade in a 2% range.

Traders have been eyeing the fixing for signs of where Beijing wants to guide the yuan after it weakened to within a whisker of the edge of its trading range last week. China’s policymakers have been vigilant of currency pressure which can spill over to local stocks and bonds, despite the fact that the country’s export engine would benefit from a weaker yuan.

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“I think the pressure is rising for an increase in volatility for both fixing and spot and it’s increasingly difficult for the PBOC to draw a hard line here if the dollar continues to strengthen,” said Xiaojia Zhi, head of research at Credit Agricole CIB. “That said, the PBOC would remain mindful to manage the expectations.”

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