Chinese yuan falls to three-month low after PBOC sets weakest daily fixing in five years
China’s currency sinks to its lowest level against the dollar since mid February. Traders say yuan is still on the path of slow depreciation.
China’s currency tumbled to its lowest level against the US dollar since February 15 after the country’s central bank set its weakest fixing in five years.
Onshore yuan in Shanghai extended a six-day losing streak on Wednesday to hit 6.5648 per US dollar. That’s 0.14 per cent, or 96 basis points, weaker compared with Tuesday and the weakest since February 15.
The offshore yuan, meanwhile, was almost flat, down 4 pips or 0.01 per cent to 6.5667 as at 5.50pm.
The People’s Bank of China (PBOC) on Wednesday set the yuan reference point against the US dollar at 6.5693, 225 pips weaker than on Tuesday. It was the central bank’s lowest fixing since March 16, 2011 when it was adjusted to 6.5718 against the US dollar.
Traders are allowed to deal up to 2 per cent either side of the reference point for the day.
“We are likely to see renewed speculation on currency policy in the run up to US China Strategic & Economic Dialogue (S&ED), to be held in Beijing, in early June,” Heng Koon-how, Singapore-based senior investment strategist at Credit Suisse, said. He still expects the currency to fall to 6.9 per dollar in 12 months.
The Wall Street Journal reported on Monday that the PBOC has discarded a market-based mechanism and set the exchange rate back to what suits authorities’ needs since January. It cited unnamed sources close to the central bank.
“I believe that this comment may be outdated,” Heng said, “The onshore yuan has previously been relatively stable on a unilateral basis against the US dollar across most of March and April. But since the start of May, it has started to weaken again noticeably from 6.50 to 6.55 per dollar.”
The weakening came as April’s macroeconomic figures for China turned out to be weaker than expected, as well as renewed expectations of increased risk of an interest rate hike from the US, Heng said.
“We believe that the determination by Chinese authorities to liberalise the yuan remains unchanged over the longer run,” Heng said.
Louis Tse Ming-kwong, director at VC Brokerage, said the yuan’s fall on Wednesday was influenced by the rate outlook in the US.
“The US dollar strengthened as expectations on an interest rate hike climbed. Naturally the yuan goes weaker,” Tse said, “The drop on Wednesday is not really sharp and the market consensus for the exchange rate is 6.6 to 6.7 per dollar,” Tse said.
However, Stephen Innes, a senior trader at OANDA Asia Pacific, said: “I really feel that the PBOC still has their hand in the pot here to make sure the onshore market doesn’t lead off too aggressively.”
The Chinese currency market’s reaction to a possible US Federal Reserve interest rate hike in June was toned down compared with the previous increase in December, indicating the PBOC’s tightening oversight, he said.
“Given the magnitude of the moves in other currencies in recent weeks, this market is very muted,” Innes said.