China’s yuan drops sharply following media report PBOC prepared to tolerate softer currency
Thursday’s session saw the yuan recapture lost ground after a PBOC statement saying that it has no plan to boost exports by depreciating its currency
The offshore yuan market was sent on a wild ride Thursday afternoon, before settling moderately lower, amid reports that China’s central bank is prepared to allow the currency to fall as low as 6.8 per dollar in 2016.
The offshore yuan in Hong Kong plunged to 6.70 per US dollar from around 6.66 within 20 minutes, but soon climbed back to trade at 6.6610 against the greenback as of 4.24pm, 0.11 per cent or 76 basis points weaker from a day earlier.
The onshore yuan in Shanghai also saw a quick drop but recovered to close at 6.6433 per dollar at 4.30pm, 31 pips or 0.05 per cent stronger from a day earlier.
The gap between onshore and offshore yuan has narrowed to 170 pips, from over 300 pips after the Brexit vote.
The sharp movement came after Reuters reported that the People’s Bank of China has the intention to allow the currency to soften to 6.8 per dollar in 2016, citing policy sources.
The PBOC wants a weaker yuan to help support the economy, the report said, citing a government economist which it did not identify.
“The central bank is willing to see yuan depreciation, as long as depreciation expectations are under control,” the report cited the economist as saying.