Yuan weaker by 0.33 per cent this week and tipped to fall further
Expectations of more monetary policy easing by central bank put downward pressure on currency
The yuan sank to a fresh six-week low on Friday, bringing the currency’s depreciation against the US dollar for the week to 0.33 per cent.
Traders expect the yuan to weaken further in the near future due to the weak mainland economy and uncertainty about whether it will be added to the International Monetary Fund’s special drawing rights basket.
Offshore yuan traded at 6.4153 against the US dollar on Friday, below the 6.40 level for the first time in two weeks and the weakest since September 25, when it was at 6.4158. The offshore yuan fell 0.33 per cent against the US dollar this week, the second weekly depreciation in a row. It weakened by 1.12 per cent in the previous week.
Onshore yuan closed at 6.3730 against the US dollar on Friday, also a six-week low since September 28, when it was at 6.3823.
Heng Koon-how, a senior foreign exchange strategist at Credit Suisse, said the yuan was expected to weaken next week after weak trade for both onshore and offshore yuan this week.
“One of the key reasons is the cautious tone set by the latest round of October macroeconomic data for China that was published last week,” Heng said. “The October data confirmed that the weakness in China’s industrial and export oriented sectors continued, while consumption, infrastructure and bank lending continue to hold up better and continue to support growth.
“The cautious set of October macroeconomic data reinforced expectations of more monetary policy easing from the People’s Bank of China to come and that is weighing down on the onshore yuan.”
Heng said he expected the yuan would go even lower in future.
“We continue to expect a slow drift in onshore yuan lower, until we get clarity from the International Monetary Fund’s review on whether to add the yuan in the special drawing rights basket,” he said.
The SDR currency basket consists of the euro, yen, US dollar and pound and China is keen on getting the yuan to join the league to boost the status of the currency as a reserve currency. The IMF has, however, given no timetable for the review.
Heng said other emerging markets currencies were weak as investors had been worrying about the weak growth in those markets
Tommy Ong, managing director of treasury and markets at DBS Hong Kong, also said the yuan would continue to be weak in the medium term, expecting it to hit 6.42 by the end of this year due to the strong US dollar and China’s weak economy.
The US dollar remained strong against other currencies this week, with the euro trading against the US dollar at 1.0774 on Friday, weaker by 0.36 per cent. The US dollar traded against the yen at 122.67, strengthened by 0.05 per cent, while the pound traded against the US dollar at 1.5229, weaker by 0.03 per cent.
