Chinese yuan falls after central bank sets weakest fixing in more than two months

Mainland yuan weakens, offshore currency little changed.

PUBLISHED : Friday, 13 May, 2016, 11:49am
UPDATED : Monday, 27 June, 2016, 11:51am

The Chinese yuan fell on Friday morning after the country’s central bank set the daily reference point at the weakest level in more than two months.

The yuan that is traded in Shanghai shed 0.13 per cent, or 85 basis points, in the morning session to 6.5224 against the US dollar at 10.35 am.

The yuan that trades in Hong Kong was little changed —1 basis point lower — at 6.5478 to the US dollar at 10.35 am.

The offshore yuan hit an intraday low of 6.5546, the weakest level since March 2 when it traded at 6.5558 to the US dollar.

The People’s Bank of China (PBOC), the country’s central bank, on Friday set the yuan reference point against the US dollar at 6.5246, 287 basis points lower than on Thursday. It is the weakest since March 4 when the reference point was 6.5284.

Stephen Innes, a senior trader at OANDA Asia Pacific, said the gap between onshore and offshore yuan has widened recently.

“After the initial reactionary drop in [offshore yuan trading], the pair comes back aggressively big and the onshore/offshore spread has now widened close to 300 pips. The offshore market remains well supported on a pullback with traders adopting a buy in dip mentality,” Innes said.

Against the backdrop of China’s shaky economic recovery, analysts expect the US dollar to strengthen in the long term.

“We believe that the US dollar will maintain a strong position,” said Jasper Lo Cho-yan, chief executive of King International Financial. “Investors are not optimistic about the outlook of the Chinese currency.”

Innes echoed Lo’s comments and said markets have been jittery, given there is still a chance for the US Federal Reserve, central bank to the world’s largest economy, to hike interest rates and for the PBOC to allow the yuan to devalue.

“The markets appear very anxious with growing concerns that China’s massive stimuli efforts now have long-lasting marginal effects while the unbridled mainland credit boom has increased the financial sector’s risks dynamically,” Innes said.