Yuan falls after New Zealand rate cut and lingering producer deflation in China

PUBLISHED : Thursday, 10 March, 2016, 2:13pm
UPDATED : Thursday, 10 March, 2016, 7:50pm

The yuan extended losses on Thursday, falling for the fourth straight day, after New Zealand cut its main interest rate and Beijing released data showing lingering deflation among producers.

Offshore yuan traded in Hong Kong was quoted at 6.5213 to the US dollar in early Thursday trade, before bouncing back to 6.5193 at 6pm, weaker by 0.14 per cent from Wednesday’s close. The currency is down 0.3 per cent so far this week, after rising 0.67 per cent last week.

Jasper Lo Cho-yan, chief executive of King International Financial, said the yuan was dragged lower following the release of the monthly producer price index, which tracks the rate of inflation experienced by producers. The February reading for the index dropped 4.9 per cent on year, reflecting the 48th straight month of decline. This followed poor trade data on Tuesday that showed China’s exports were down by a quarter in US dollar terms last month, the biggest monthly fall in seven years.

“All these data show a weak economy that may force China to cut interest rates further. That has hit the yuan hard,” Lo said.

Lo said currency traders were also disappointed that Beijing so far has not announced fresh measures to support the yuan during the Two Sessions, in contrast to market expectations last week.

The yuan was also affected by moves in New Zealand, Lo said.

On Thursday morning the Reserve Bank of New Zealand cut its official interest rate by 25 basis points to a historical low of 2.25 per cent and hinted that more cuts could follow. The New Zealand dollar fell 3 per cent against the US dollar.

“The big fall of the kiwi has had an impact on other Asian currencies, including the yuan,” he said.

The People’s Bank of China set the yuan’s daily reference rate at 6.5127 per US dollar on Thursday, weaker by 21 basis points from Wednesday’s fixing. The currency is allowed to trade 2 per cent either side of the mid-price on a daily basis.

Onshore yuan traded in Shanghai weakened by 0.05 per cent to 6.5140 per US dollar at 6pm on Thursday.

The PBOC set the mid-price of the yuan against the euro at 7.1531, stronger by 81 basis points. Againsg the yen the mid-price was 5.7521 per 100 yen, stronger by 322 basis points, and the mid-price for the pound was set at 9.2511, weaker by 14 basis points.

The Hong Kong dollar was trading about 0.03 per cent weaker at 7.7644 per US dollar late Thursday.