Yuan rises to fresh three-week high on central bank cue as chances of another US interest rate rise fade

PUBLISHED : Monday, 07 March, 2016, 1:06pm
UPDATED : Monday, 27 June, 2016, 11:51am

Yuan rose to a fresh three-week high on Monday after the central bank fixed the reference rate at the strongest level in two months and the US dollar fell against other currencies after weak economic data suggested another interest rate rise may not be round the corner.

Offshore yuan traded in Hong Kong was quoted at 6.4961 per US dollar in early trades on Monday, just shy of the three-week high of 6.4816 on February 15. This represented a 0.06 per cent increase from Friday, when it rose 0.32 per cent. The yuan was trading at 6.5059 at 11.15am on Monday.

The currency last week rose 0.67 per cent, the strongest weekly gain in two months, due to a weaker US dollar and anticipation of Beijing announcing stimulus measures at its “Two Sessions”.

The People’s Bank of China on Monday set the yuan’s daily reference rate at a two-month high of 6.5113 per dollar, up 171 basis points from Friday. With that, the central bank has set the mid-price higher for three straight days. It had raised it by 128 basis points on Friday and by 78 basis points on Thursday.

The yuan is allowed to be traded two per cent in either direction of the mid-price set by the PBOC.

Stephen Innes, senior forex trader at OANDA, said: “While most of the weekend’s news from the National Party Congress has been digested we’re still keeping an eye out for additional headlines.”

Jasper Lo Cho-yan, chief executive of King International Financial Holdings, said the US dollar has fallen against other major currencies, leading to a strengthening of the yuan.

“Although the US jobless data improved on Friday, it also showed the salary level has not gone up. The market now widely expects the US would not increase the interest rate at the Fed meeting next week. We were not expecting the earliest rate rise before June,” Lo said. ‘This has led the US dollar to go down against other major currencies, helping the yuan to rise.”

Offshore yuan has appreciated 0.91 per cent against the US dollar so far this year.

Onshore yuan also rose to a fresh three-week high of 6.5040 on Monday morning, close to its three-week high of 6.4900 on February 5. The currency was trading at 6.5133 at 11.15am. It rose 0.38 per cent last week and has depreciated 0.33 per cent against the US dollar this year.

PBOC set the mid-price of the yuan against the euro at 7.1625, weaker by 131 basis points; at 5.7221 against 100 yen, stronger by 223 basis points; and at 9.2549 to the pound, weaker by 45 basis points.

Meanwhile, the Hong Kong dollar remained stable at 7.7649 per dollar on Monday morning, edging up 0.02 per cent after rising 0.07 per cent last week.