China’s onshore yuan trades little changed after to three-month high

Some analysts believe the currency will soon revert to a softening trend

PUBLISHED : Wednesday, 13 April, 2016, 4:12pm
UPDATED : Wednesday, 13 April, 2016, 4:12pm

The onshore yuan in Shanghai traded flat on Wednesday, consolidating near a three-month high, while analysts believe further downside is in store for the currency, even as better-than-expected export data has helped to restore the shine on China’s economic prowess.

The onshore yuan weakened on Wednesday afternoon to 6.4665 per US dollar, down 0.03 per cent or 20 basis points from Tuesday closure.

The People’s Bank of China set the yuan reference rate against the US dollar at 6.4591 on Wednesday, 0.04 per cent or 25 basis points stronger than Tuesday’s fix. Wednesday’s fixing marks the fourth straight day of firmer settings by the central bank, and it highest level since April 1.

The offshore yuan trading in Hong Kong stood at 6.4772 per dollar, 0.05 per cent or 32 points weaker from Tuesday.

On Tuesday the onshore yuan rallied in afternoon session to close regular trading at 6.4575 per US dollar, its strongest level in more than three months.

However, the CFETS RMB Index, which tracks a basket of currencies, continued to weaken and hit a record low at 97.64, according to latest data from China Foreign Exchange Trade System.

“The onshore yuan and Asian currencies now seem to be taking their cues from the improving risk-on sentiment surround the crude oil price rebound,” Heng Koon-How said, a Singapore-based senior investment strategist at Credit Suisse.

The crude oil prices in New York hit a four-month high Tuesday on news that Russia and Saudi Arabia had reached a consensus to freeze oil output, according to Russian news agency Interfax.

Although market participants seemed to have ignored the risks of a further growth slowdown in China, a renewed weakness in the yuan and Asian currencies will come once the risk-on sentiment fades, Heng said.

“It is true that China released a very encouraging set of monthly trade figures this morning. However, this may be due in large part to the seasonal rebound in China’s exports every year,” Heng said.

“The yuan traders are likely sitting tight, waiting for the mainland’s GDP release on Friday,” Stephen Innes, senior trader at OANDA Asia Pacific, said.

On Tuesday the International Monetary Fund released its latest quarterly World Economic Outlook report. The Washington-based institution raised its forecasts on China’s economic growth this year to 6.5 per cent and 6.2 per cent for 2017, both up 20 basis points from earlier estimates.

The IMF cut its global growth forecast for 2016 to 3.2 per cent from its 3.4 per cent forecast in January, citing spillover risks from a growth slowdown in China and low oil prices on emerging market countries.