Yuan edges higher in afternoon trade after PBOC ratchets up reference rate

PUBLISHED : Tuesday, 17 May, 2016, 3:53pm
UPDATED : Monday, 27 June, 2016, 11:51am

The yuan traded flat to higher on Tuesday afternoon after the Chinese central bank ratcheted up the yuan mid price.

Offshore yuan in Hong Kong traded at 6.5395 to the US dollar late afternoon on Tuesday, 0.12 per cent or 78 basis points stronger from Monday.

The onshore yuan in Shanghai traded at 6.5195 to the US dollar, 0.01 per cent or 9 basis points weaker from Monday.

People’s Bank of China on Tuesday set the yuan midpoint at 6.520, stronger by 0.22 per cent or 143 basis points.

Stephen Innes, senior trader at OANDA Asia Pacific said China’s bad debt is still causing concerns for the market as the PBOC deals with the aftermath of aggressive lending and stimulus to prop up the economy.

“Friday’s China loan data indicated a significant drop in new lending amidst mounting bad debt, which has now risen for 18 consecutive quarters,” said Innes in a report.

Banks made 555.6 billion yuan (HK$661.6 billion) in net new yuan loans in April, lower than expected and less than half the 1.37 trillion yuan in new lending in March.

Zhiwei Zhang, chief economist at Deutsche Bank, said the yuan’s 4 per cent year-to-date depreciation is modest when compared with other major currencies, including the euro and Japanese Yen.

“First, the PBOC officials have repeatedly explained that, they would only use the yuan index as a reference rather than embarking on a new hard peg regime,” said Zhang in his recent report. “Second, the PBOC did not specify the parameters for the ‘stability of yuan exchange rate’ that it intended to achieve.”