Yuan rebounds to reverse four-day losing streak

A stronger reference rate setting and softer US dollar, help underpin gains in the Chinese currency

PUBLISHED : Thursday, 03 March, 2016, 2:33pm
UPDATED : Thursday, 03 March, 2016, 2:33pm

The yuan strengthened from a three-week low on Thursday morning, powered by a softening US dollar and a stronger daily rate setting by the by the People’s Bank of China.

The offshore yuan traded in Hong Kong was quoted at 6.5419 in early trades on Thursday, representing a 0.09 per cent rise from Wednesday closing price in regular trading. On Wednesday the yuan was at a near three-week low after ratings agency Moody’s downgraded its outlook on Chinese sovereign debt to “negative”.

In Thursday afternoon trade, the yuan was at 6.5437 per US dollar at 12.45pm in Hong Kong, reversing a three-day falling streak that began from Monday after China’s central bank cut the reserve requirement ratio for banks by 50 basis points.

Jasper Lo Cho-yan, chief executive of King International Financial Holdings, said the bounce in the yuan back was driven by a fall of the US dollar against other leading currencies.

“The market has digested the news of the reserve ratio cut and the Moody’s decision to downgrade the outlook on Chinese sovereign debt. The US dollar weakness is helping to boost the yuan price,” Lo said.

“However, the yuan outlook remains weak due to the Chinese economy slowdown. It is likely the yuan will weaken again in the medium term,” he said.

The People’s Bank of China on Thursday set the yuan’s daily reference rate at 6.512 per dollar, stronger by 78 basis from Wednesday fixing.

Many forex traders were taken off guard by the central bank’s fixing on Wednesday, which left the currency weaker by 105 basis points from Tuesday’s fixing, reflecting the weakest level since February 3.

The onshore yuan gained 0.14 per cent to trade at 6.5410 per US dollar in early trades on Thursday, before softening to 6.5436 at 12.45pm in Hong Kong.

Meanwhile, the Hong Kong dollar traded weaker against the US dollar, slipping 0.03 per cent to 7.7740 at 12.45pm on Thursday.

The PBOC set the yuan midprice against the euro at 7.1121 on Thursday, stronger by 60 basis points from Wednesday. Against the pound, the midprice was set at 9.2099, weaker by 705 basis points. The fixing per 100 yen was 5.7591, weaker by 109 basis point.