Yuan weakens after People’s Bank of China cuts fixing by the most in eight months
The yuan weakened in both Shanghai and Hong Kong on Wednesday, after mainland China’s central bank lowered the currency’s daily reference rate by the most in more than eight months.
The People’s Bank of China cut the yuan’s mid-point rate to 6.4943 per US dollar, weaker by 0.58 per cent from the previous fixing of 6.4565, the biggest percentage weakening since mid-August.
The onshore rate was weaker by 0.15 per cent at 6.4995 per US dollar at 4.45pm, while the offshore yuan in Hong Kong depreciated 0.1 per cent versus the greenback to 6.5094.
“With mainland economic recovery looking a bit shaky, as per the softer Caixin PMI report yesterday, we could see more short CNH speculative positions hitting the market,” Stephen Innes, senior trader at OANDA Asia Pacific, said in a note on Wednesday.
On Tuesday, the Caixin manufacturing Purchasing Managers Index, a privately-produced gauge of China’s factory activity, fell unexpectedly to 49.4 in April. It followed the recent release of China’s official manufacturing PMI for April, which also came in below market expectations and stood at 50.1 in April.
On Tuesday, the PBOC raised the yuan’s fixing to the strongest level against the US dollar this year. However, traders said the fixing still lags behind its trade-weighted basket, as the Chinese authority seems to have adopted an opportunistic approach to manage its currency recently.
“It seems that when the US dollar is soft, the PBOC tracks the dollar more than the trade-weighted index (TWI). Some officials think this protects China in case the US was seeking to devalue the dollar for competitive purposes, ” said strategists from Brown Brothers Harriman in a recent research note.
“On the other hand, when the dollar is strong, the PBOC appears to track the TWI closer than the greenback. This may protect it from claims of competitive depreciation,” they added.