China’s yuan eases to six-week low versus US dollar

PUBLISHED : Friday, 06 May, 2016, 11:10am
UPDATED : Friday, 06 May, 2016, 6:16pm

The yuan fell to a six-week low on Friday morning after China’s central bank set the daily fixing at its weakest level in two months, while analysts believe the outlook of the currency remain weak.

On a weekly basis, the central bank has devalued the yuan daily fixing by 0.95 per cent, which ranks as the biggest weekly slump since the one-off devaluation of 2 per cent in August last year. China has not yet let the yuan to become freely floated but the central bank would set a midprice for the currency every morning while traders are allowed to trade up to two per cent ups or downs around the reference price.

It is natural for the yuan to fall against the US dollar with other currencies when the US dollar strengthened this week
Jasper Lo, King International

The onshore yuan traded in Shanghai rose 0.07 per cent on Friday to 6.4987 per US dollar by 5.15pm, after falling for three consecutive days. During intraday trade on Thursday, the onshore rate touched 6.5092, the weakest level in a month. On a weekly basis, the onshore yuan was down 0.41 per cent, its biggest weekly fall in six weeks.

The offshore yuan in Hong Kong traded up 0.06 per cent to 6.5142 per US dollar at 5.15pm.

Jasper Lo, chief executive of King International, said the People’s Bank of China fixing to set the yuan price lower this week was related to the rising US dollar.

“The US dollar has risen against the euro, the Australian dollar and Canadian dollar this week. So far, only the yen has risen strongly against the US dollar. It is natural for the yuan to fall against the US dollar with other currencies when the US dollar strengthened this week,” he said.

Lo said the economic data of mainland China released this week so far is not good which has led the international investors to sell the offshore yuan, which also dragged down its onshore counterparts.

Looking ahead, he believes the yuan would remain weak due to the many uncertainties in the international market in the next two months.

“Japan will host the G7 meeting at the end of this month to discuss about currencies, while the US Federal Reserve will discuss about the interest rate rise in June. Then we will have the US presidental election. All would have an impact of the currencies market and bring more volatilities of the yuan,” he said.

Louis Tse Ming-kwong, a director of VC Brokerage, said a weaker yuan was one reason that led to the mainland stock market falling on Friday.

“The market has expected the yuan would go weaker with the Chinese economy slowdown. This has led investors to sell out the yuan assets,” Tse said. “There is no positive news that could support the yuan to bounce back substantially. I believe the yuan will continue to get lower in the near term.”

China’s benchmark Shanghai Composite Index closed 2.82 per cent lower, or 84.59 points to 2,913.25. The fall was the biggest daily loss since February 29, when stocks dived 2.86 per cent. The CSI 300, which tracks large companies listed in Shanghai and Shenzhen, dropped 2.6 per cent, or 83.57 to 3,130.35.

In Hong Kong, stocks stayed in negative territory for a fifth day. The Hang Seng Index closed 1.66 per cent lower, shedding 339.95 points to 20,109.87. The Hang Seng China Enterprises Index slid 1.8 per cent, or 155.03 points to 8,471.70.