Chinese yuan touches lowest level in eight years
The yuan extended its recent losses on Wednesday, diving to a fresh eight-year low after China’s central bank cut the reference rate for the ninth consecutive trading day.
Both offshore and onshore yuan were trading below 6.86, a level regarded by officials and analysts as psychologically important.
Offshore yuan traded in Hong Kong weakened for a third consecutive day, but expanded its decline in the afternoon trading, down 0.14 per cent, or 97 basis points, to 6.8808 as of 4.45pm, after earlier slipping to 6.8843, the lowest level since the offshore market was launched in 2010.
Onshore yuan traded in Shanghai slumped for a fifth straight day, giving up 0.22 per cent, or 149 basis points, to trade at 6.8705 per dollar, the lowest level since late 2008.
Onshore yuan has weakened 1.4 per cent, or about 1,000 basis points, in the previous five trading days.
China’s central bank on Wednesday set the daily fixing 97 basis points, or 0.14 per cent, weaker at 6.8592, the lowest level in more than eight years. Trading is allowed up to 2 per cent either side of the reference point for the day.
The currency has dropped more steeply since the unexpected US presidential election victory of Donald Trump, who has repeatedly called for trade tariffs on China and labelled the country a currency manipulator. During the election campaign, Trump accused China of deliberately devaluing the yuan in order to make its exports unfairly competitive, and threatened to impose a 45 per cent tariff on Chinese imports.
However, Marc Chandler, global head of currency strategy at Brown Brothers Harriman, told CNBC that he does not expect Trump to be as tough on China as his campaign rhetoric might suggest. Chandler pointed out that President Barack Obama, during his own presidential campaign, had also said China manipulated its currency, but later softened his stance.
The US Dollar Index, a gauge of the greenback against a basket of major currencies, rebounded in the Asian afternoon trading, up 0.06 per cent at 100.29 after retreating back to the level of 99.91 on Wednesday morning.
“The Chinese yuan remains very much a US dollar-driven storyline against the backdrop of higher global bond yields and broader dollar appeal. The PBOC fix came in considerably lower than the market expected,” said Stephen Innes, senior trader at Oanda, referring to the Chinese central bank.
“With little intervention on offer from the PBOC, and US dollar sentiment looking higher, dealers are nervously testing the upper levels on onshore and offshore yuan.”
Innes forecasts a gradual depreciation of the yuan to 6.9 against the US dollar by the end of this year.