China’s yuan see-saws against US dollar

PUBLISHED : Monday, 14 March, 2016, 1:57pm
UPDATED : Monday, 30 May, 2016, 5:09pm

Yuan see-sawed against US dollar on Monday after hitting a three-month high on Friday.

The US dollar weakened against most other currencies as traders now believe there is almost no chance of an interest rate increase by the US Fed at its meeting this Wednesday. But the yuan has not been rallying either as it lacks strong fundamentals, analysts said.

Offshore yuan traded in Hong Kong and overseas markets rose to 6.4805 to the dollar in the morning, up 0.03 per cent from Friday, when it hit a three-month high. It then softened 0.15 per cent to 6.4919 at 5pm.

Onshore yuan traded in a similar pattern, first increasing 0.06 per cent to 6.4899, before edging down to 6.4924 at 5pm, the same as Friday’s close when it hit a two-month high.

The People’s Bank of China (PBOC) set the mid-price at 6.4913, weaker by 8 basis point from Friday, when it set the reference price at the strongest level this year. The currency is allowed to be traded 2 per cent up or down the mid-price set by the PBOC.

Jasper Lo Cho-yan, chief executive of King International Financial, said the yuan would continue to fluctuate against the US dollar for some time.

“The yuan’s rise to a three-month high last week was due to the weak US dollar as the market widely believed the US would not increase the interest rate at the Fed meeting this Wednesday,” Lo said.

The US dollar also weakened against the euro, which rose sharply after the European Central Bank on Thursday indicated it would not cut interest rates further. This has also helped the yuan to stabilise of late,” Lo said.

European Central Bank President Mario Draghi on Thursday hinted that the ECB may be done with additional easing measures for now, boosting the euro against the dollar.

“However, the yuan lacks the power to rise much further than the current level because China’s economic data remain week. It is likely to stay stable for a while and weaken again in the medium term,” Lo said.

Heng Koon How, senior forex investment strategist at Credit Suisse, said a stronger euro led to a weak US dollar, helping the yuan strengthen in recent days.

“The USD had weakened against most commodity-related and emerging-market currencies. In addition, the euro has also stayed strong following the European Central Bank meeting,” Heng said.

“Overall, we reiterate our view that onshore yuan has been uncharacteristically strong since the start of the National People’s Congress. The latest trade data for February was rather weak, with a large contraction in exports. February inflation figures for China were also mixed. While the consumer price index was stronger due to escalation in food and vegetable prices, the producer price index contraction is dire,” Heng said.

The PBOC set the yuan mid-price against the euro at 7.2457, stronger by 218 basis points; against 100 yen at 5.7070, stronger by 380 basis points; and at 9.3352 against the pound, weaker by 532 basis.

The Hong Kong dollar traded at 7.7589 to the US dollar at 5pm on Monday, the same as on Friday when it hit the strongest level since mid-January.