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Chinese yuan may weaken further

Commentator warns that China’s currency could weaken further because of concerns over a US central bank interest-rate hike

PUBLISHED : Friday, 20 May, 2016, 11:43am
UPDATED : Monday, 27 June, 2016, 11:51am

China’s yuan currency was flat on Friday after it dropped for two straight days to its weakest since March 3 against the US dollar the previous day.

Stephen Innes, senior trader at OANDA Asia Pacific said he expects further weakness in the Chinese currency over the short term as the country’s economy continues to struggle, coupled with the prospect of higher US interest rates from the Federal Reserve.

“Increased prospects of a June Fed hike continue to weigh negatively,” Innes said in a report. “The hawkish tone from the Fed minutes not only increased the odds of a June rate hike but increases the chances that we could see two, or even three rate hikes, this year.”

Onshore yuan in Shanghai remained flat at 6.5433 to the US dollar at 10.10 am.

The People’s Bank of China, the country’s central bank, on Friday set the yuan reference point against the US dollar at 6.5510, 21 basis points, or 0.03 per cent stronger than on Thursday. Dealers are allowed to trade up to 2 per cent either side of the reference point for the day.

Offshore yuan in Hong Kong traded at 6.5568 to the US dollar at 10.10 am, 0.09 per cent, or 58 points stronger than on Thursday.

Innes said any increase in US interest rates will likely accelerate a depreciation of the yuan in offshore markets as capital outflows rise.

“If the US central bank was to accelerate the interest rate hike cycle, capital outflows would speed up and be a real concern for global markets and risk aversion in general,” Innes said.

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