Yuan drops to two-month low on weak data, strong US dollar

Currency weakens in Shanghai and Hong Kong

PUBLISHED : Tuesday, 10 May, 2016, 11:56am
UPDATED : Tuesday, 10 May, 2016, 11:56am

The Chinese yuan fell to a two-month low on Tuesday morning after the country reported weak economic data and the central bank reduced the reference price.

Onshore yuan traded in Shanghai dropped to 6.5233 on Tuesday morning, the lowest level since March 4. It has fallen 0.14 per cent from Monday, extending its decline to a fifth straight day.

The People’s Bank of China (PBOC), the country’s central bank, fixed the yuan mid price lower at 6.5233. It has not been at that level since March 3.

It is 0.2 per cent or 128 basis points lower from Monday when the central bank set the midprice 0.15 per cent higher. The PBOC last week had fixed the yuan lower against the greenback by 0.95 per cent for the whole week, the biggest weekly slump since the one-off devaluation of 2 per cent in August last year.

China has not yet allowed the yuan to float freely against other currencies. However, the central bank sets a mid-price for the currency every morning and traders are allowed to deal in a 2 per cent range on the reference price. The PBOC fixing is seen by traders as some guidance to the direction of the currency.

“The yuan was likely to continue to fall as the latest economic data was not good,” said Ben Kwong Man-bun, executive director of KGI Asia.

China on Tuesday morning said its producer price index (PPI) in April fell 3.4 per cent year-on-year, according to National Bureau of Statistics. PPI in the first four months this year dropped 4.5 per cent year-on-year.

“The US dollar has also risen strongly this week against other currencies including the yen and the yuan. The trend for a relatively strong US dollar is likely to continue which would led the yuan to continue to be weakened,” Kwong said.

Offshore yuan in Hong Kong also hit two-month low to trade at 6.5440 per US dollar early Tuesday morning, the lowest level of the currency since March 3 and was down 0.05 per cent from Monday’s close. The currency last week fell by 0.44 per cent, its biggest weekly decline in six weeks.

On Monday, the yuan pulled back in the evening after a strong opening after the PBOC set the daily fixing higher because investors had converns over the mainland’s economic outlook after an official indicated a L-shape growth in the future which offered little hope for strong economic stimuli measures.