Mainland China central bank sets yuan sharply weaker following strengthening of US dollar
Mainland China’s central bank set the yuan mid-price significantly weaker on Thursday morning, following a strengthening of the US dollar in the past two days, and after the mainland reported stronger-than-expected trade figures for March on Wednesday.
The People’s Bank of China (PBOC) set the mid-price at 6.4891 against the US dollar on Thursday, 0.46 per cent or 300 points weaker from Wednesday’s fixing – the steepest drop since January 7.
Onshore and offshore yuan traded lower following the fixing. The offshore yuan fell below 6.5 against the US dollar at around 9.20am before rebounding to 6.4952 at 10.30am, 0.16 per cent lower. Onshore yuan was trading at 6.4847 against the US dollar at 10.37am, 0.11 per cent lower.
China’s exports in yuan terms surged 18.7 per cent year on year last month, the biggest increase in more than a year.
Meanwhile imports declined by 1.7 per cent, leaving the mainland with a trade surplus of US$30 billion, slightly below analysts’ expectations.
Aidan Yao,senior emerging Asia economist at AXA Investment Managers, said Thursday’s fixing was not surprising, given the strong performance of the US dollar overnight.
The dollar index strengthened 0.8 per cent overnight and continued its rally in early Asian trade on Thursday.
“So far, the CNY/USD fix and the US dollar index are still fairly aligned,” Yao said. “It seems today, the PBOC is playing catch up. The offshore yuan is even more market- and sentiment-driven, so some amplifications there are not entirely a surprise.”
Yao said he remained comfortable with AXA’s call of medium-term depreciation of the yuan on a trade-weighted basis.
“But the active foreign exchange management, provided that it is successful, will keep the process orderly and gradual,” he said.