Yuan records biggest weekly drop in nine months, as greenback continues to strengthen

Chinese currency hovers around lowest level in over six years; Thai Baht rallies after losing 1.85pc this month, after King’s death

PUBLISHED : Friday, 14 October, 2016, 11:13am
UPDATED : Friday, 14 October, 2016, 11:13am

The Chinese yuan has recorded its the biggest weekly drop in nine months, as the US dollar strengthened to a seven-month high amid the expectation that interest rate rises are likely to rise by the end of the year.

The onshore yuan in Shanghai has depreciated 0.84 per cent against the greenback this week to hover around its lowest level since September 2010.

The fall marks the biggest weekly drop since the week of January 8, when it lost 1.56 per cent. The offshore yuan in Hong Kong was down 0.43 per cent this week, extending the 0.47 per cent drop last week.

On Friday, the Chinese currency held its ground, however, after the central bank strengthened the yuan fixing for the first time in eight days as the US dollar retreated from its seven-month high.

The onshore yuan was flat at 6.7247 against the US dollar by 10 am, up only 1 basis point from a day earlier, while the offshore yuan in Hong Kong dipped 1 pip to 6.7339 per dollar.

The People’s Bank of China on Friday set the yuan reference point at 6.7157 against the US dollar, up 139 basis points or 0.2 per cent than on Thursday, after the US dollar retreated from its seven-month high overnight.

“The prospect of the Federal Reserve raising rates in its December meeting and the still-significant capital outflow pressures in recent months may further weigh on the yuan,” Goldman Sachs wrote in a note.

The investment bank expects the yuan fixing to reach 6.8 per dollar by the end of this year and 7.3 per dollar by the end of 2017, translating into 1.1 per cent and 8.5 per cent further depreciation against the US dollar from current levels.

In Thailand, the Baht rallied on Friday morning, up 0.48 per cent to 35.23 against the US dollar, after the announcement that King Bhumibol Adulyadej had died.

Jeffrey Halley, senior market analyst at Oanda, said: “In the aftermath of this sad event we are expecting investor nervousness to intensify as there may be political uncertainty.

“Although the Thai baht and [stock benchmark] SETi will remain under pressure, much of the uncertainty premium is already built into the price of both, thus losses will be limited from here.”

The baht has lost 1.85 per cent so far in October, standing at the lowest level since May 31.

Halley said the Bank of Thailand will be ready to step in to smooth any disorderly currency moves.