Chinese yuan drops against the US dollar, slips after strengthening over recent weeks

China’s currency weakens from day-earlier gains earned boost to foreign-currency reserves

PUBLISHED : Friday, 08 April, 2016, 2:44pm
UPDATED : Friday, 08 April, 2016, 4:01pm

China’s yuan currency weakened on Friday after a slight gain the day before that was brought on by the country raising its foreign-currency reserves.

In Hong Kong the offshore yuan traded at 6.4896 to the US dollar, down 0.08 per cent or 51 basis points at noon on Friday. In Shanghai the yuan changed hands at 6.4790, down 0.28 per cent or 183 basis points.

The People’s Bank of China on Friday set the yuan reference point against the US dollar at 6.4733, 26 basis points, 0.04 per cent less than Thursday. Traders are allowed to deal up to 2 per cent either side of the reference point for the day.

China’s foreign-currency reserves rose in March to $3.213 trillion, $10.26 billion higher compared with the end of February. It was the first increase in five months. The yuan has recovered in recent weeks.

Stephen Innes, senior trader at OANDA said the Chinese central bank’s decision makers must be happy with the relative stability of the yuan in the wake of dovish moves by the US Federal Reserve, central bank for the world’s largest economy.

“Market focus has shifted to Japan so mainland policymakers can revel in relatively calm waters for a change,” Innes said.

The US central bank’s rate-setting committee decided last month to keep its target range for funds at 0.25 per cent to 0.5 per cent. It released minutes from that meeting this week. It said economic conditions will evolve in a way that will warrant only gradual rate increases.

The Japanese yen hit a 17-month high against US dollar and showed no signs of weakening on Friday. It was up to 108.76 to the dollar early on Friday in Tokyo. That was its highest level since October 2014.

Innes said another active 24 hours on the back of the Federal Reserve’s comments, coupled with another wave of global risk aversion, had contributed to a persistent rally in the Japanese currency because the country’s surging current account offers investors a lifeboat in a turbulent market.

Investors are coming to terms with the fact that Japan’s policies have little on offer to counteract the yen’s appreciation, Innes said.

“We cannot rule out a move to 105 in the near term,” he said.