Hong Kong dollar, offshore yuan fall as speculators return while central banks retreat

PUBLISHED : Tuesday, 26 January, 2016, 10:55am
UPDATED : Friday, 26 January, 2018, 4:14pm

Both Hong Kong dollar and the Chinese yuan fell on Tuesday morning as speculators returned to the market as the two central banks stayed away.

Hong Kong dollar once hit 7.8011 to the US dollar in early trade before slipping to 7.7980, putting an end to the rising streak of the three previous days. Big buying orders, which currency traders believe to have been from the Hong Kong Monetary Authority (HKMA) to prevent the currency from falling too low, had pushed the currency above 7.80 from the early hours of Thursday. The local currency once hit 7.8294 on Wednesday midnight, its lowest in eight and a half years.

Worries over capital outflow, market slump and China’s economic slowdown dragged down the Hong Kong dollar 0.01 per cent last week. It is now down 0.55 per in the first three trading weeks of the year.

Offshore yuan was also weaker on Tuesday morning, trading at 6.6118, down 0.07 per cent from Monday. The currency rose 0.07 per cent last week.

Jasper Lo Cho-yan, director of Tung Shing Futures, said speculators sold the Hong Kong dollar and the yuan again after the HKMA and the People’s Bank of China (PBOC) stopped their intervention.

“When the PBOC and the HKMA intervene in the markets, speculators retreat. But now that they see the central banks have stopped their action, they have come back to the market again. This will continue for a while,” he said.

After the PBOC’s intervened two weeks ago to drive away speculators, offshore yuan overnight interbank funding was pushed up to 200 per cent on January 12. The currency has been generally stable since.

The PBOC’s intervention helped the currency rebound, lifting offshore yuan 0.07 per cent last week, adding to a gain of 1 per cent the previous week. That followed the offshore yuan’s fall of 1.72 per cent in the first week of the year.

Onshore yuan remained flat at 6.5793 on Tuesday morning. It rose 0.08 per cent last week.

The spread between onshore and offshore yuan has now narrowed down to 325 basis points, down from record 1,400 basis points on January 7.

The PBOC on Tuesday set the yuan mid-price against the US dollar at 6.5548, 9 basis points stronger than Monday – the third straight day that the central bank has set the mid-price higher.

But it set the yuan mid-price against the euro weaker by 237 basis points at 7.1183 and 62 basis points weaker at 5.5493 for every 100 yen. The mid-price against the pound was set 411 basis points stronger at 9.3355.

Traders are allowed to trade up to 2 per cent of either side of the mid-price for the day.