Disappointing exports and fast capital outflows drive yuan towards six-year low

China’s foreign exchange reserves fall for fourth month in a row in October, shrinking by US$45.7 billion to US$3.121 trillion

PUBLISHED : Tuesday, 08 November, 2016, 1:05pm
UPDATED : Tuesday, 08 November, 2016, 1:05pm

The yuan weakened towards its lowest level in six years with faster than expected capital outflows and the disappointing exports continuing to pressure the currency.

Onshore yuan traded in Shanghai was quoted at 6.7797 per US dollar as of 11.08 am after hitting 6.7819, towards the lowest level in six years. Offshore yuan traded in Hong Kong was quoted at 6.7900 per US dollar.

The People’s Bank of China cut the daily reference of the yuan by 0.14 per cent or 92 basis point to 6.7817 on Tuesday, a third consecutive daily weakening. The central bank allows the yuan to be traded 2 per cent in either direction of the reference rate.

The weakening of the currency comes after China’s exports fell in October, with overseas shipments dropping 7.3 per cent from a year earlier in dollar terms, adding to the depreciation pressures. Exports to the US slipped 5.6 per cent in October and fell 8.7 per cent to EU.

The US dollar continues surging towards the key 6.80 level against the yuan on the backdrop of broader USD strength
Stephen Innes, senior trader, Oanda

In addition, China’s foreign exchange reserves fell for a fourth month in a row in October, shrinking by US$45.7 billion to US$3.121 trillion, the State Administration of Foreign Exchange said on Monday.

The decline was well above a Bloomberg consensus forecast of US$33.9 billion and bigger than those of the previous three months.

“The US dollar continues surging towards the key 6.80 level against the yuan on the backdrop of broader USD strength,” said Stephen Innes, senior trader at Oanda.

“Given the proximity of the US election, it would make sense to see some position squaring ahead of the event, making an outright test of 6.80 unlikely, at least for today, said Innes.

The US dollar index, a gauge of US dollar strength against a basket of major currencies, was up by 0.03 per cent at 97.78 in Asian morning trading, following a rise of 0.86 per cent on Monday.

The dollar was lifted by the announcement by the Federal Bureau of Investigation that its review of a new batch of Democratic presidential nominee Hillary Clinton’s emails will not lead to charges. The news is likely to sustain her edge over Republican Donald Trump going into the election.

business-article-page