Yuan falls after PBOC sets reference price at lowest level in a year
PBOC fixes the yuan’s daily reference rate at 6.6652 to the greenback
The Chinese yuan fell to a two-week low on Monday morning after the People’s Bank of China set the currency’s reference price at its lowest level in over a year.
The PBOC has set the yuan’s daily reference rate at 6.6652, down 441 basis point or 0.67 per cent, which is the biggest cut the central bank has made since August 11 last year, when it cut the level by almost 2 per cent.
The PBOC allows the yuan to be traded 2 per cent in either direction of the mid-price and traders use that as a guidance for the direction of the yuan.
Both onshore and offshore yuan fell on Monday morning to two-week lows after the PBOC set the reference price lower.
Offshore yuan traded in Hong Kong was quoted at 6.6713 to the US dollar by 10am, down 0.22 per cent, after it had fallen 0.37 per cent on Friday. Onshore yuan traded in Shanghai weakened by 0.16 per cent to trade at 6.6627 to the greenback. It had fallen 0.33 per cent on Friday.
Jasper Lo Cho-yan, chief executive of King International Financial, said the weakening of the yuan followed continued worries over levels of mainland debt.
“There were reports on Friday showing the mainland debt problems could get worse. This has hurt the yuan and added more falling pressure to the currency,” Lo said.
Lo said a US interest rate rise could also lead the yuan lower, with market watchers were keeping a close eye on the global central banking conference in Jackson Hole Symposium, being held by the Federal Reserve this week.
The highlights of the meeting will be a speech on Friday by Fed chairwoman Janet Yellen with market watchers looking out for any hints of a possible rate hike this year.
“I do not expect the US to increase interest rates in the near term, but the market has speculated there could be a rate rise in the US,” said Lo.
“If that happens, it would further hurt the yuan, with the currency likely to fall beyond 6.70 yuan per US dollar soon,” he said.