Daily Report

Chinese yuan falls to lowest in two months amid slowdown, U.S. rate rise concerns

Traders see People’s Bank of China cutting rates and reserve ratios to boost growth

PUBLISHED : Thursday, 19 May, 2016, 12:25pm
UPDATED : Monday, 27 June, 2016, 11:51am

China’s yuan currency fell for a second day on Thursday to its lowest against the US dollar since March 3 on concerns over the slowing growth in the world’s second-largest economy and the possibility of a rise in US interest rates that could see money flow out of China.

Onshore yuan in Shanghai traded at 6.5436 to the US dollar at 5.50pm. That’s 0.1 per cent weaker compared with Wednesday and the weakest since March 3.

The People’s Bank of China on Thursday set the yuan reference point against the US dollar at 6.5531, 315 basis points or 0.48 per cent weaker than on Wednesday. It also marked the weakest fixing in more than three months.

Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

The currency traded offshore in Hong Kong was at 6.5639 to the US dollar at 5.50 am. That is 0.2 per cent stronger than Wednesday.

Jasper Lo Cho-yan, chief executive of King International Financial, said the yuan will continue to weaken along with China’s economy, which grew at its slowest pace for 25 years in 2015.

Concerns over a US interest rate rise have also put pressure on the yuan, Lo said.

The minutes from the most recent meeting of the Federal Reserve indicated that “most” of its members are ready to increase rates next month.

Lo expected China’s central bank to cut interest rates and the reserve requirement ratio for banks — how much money they must keep in reserve in case clients default on loans — in the second half of this year to stimulate the weak economy.

Stephen Innes, senior trader at OANDA Asia Pacific, said recent weak economic data from China is still fresh in traders’ minds.

Although the overall market reaction was muted, the data did heighten concerns that the Chinese economy is struggling, Innes said.