Offshore yuan breaks 6.79 against US dollar, refreshing its lowest level in six years

Chinese banks may have sold US dollars in the morning session to support the currency, according Bloomberg report

PUBLISHED : Thursday, 27 October, 2016, 1:05pm
UPDATED : Thursday, 27 October, 2016, 1:05pm

Offshore yuan broke the critical level of 6.79 against the US dollar to hit a low of 6.7920 in morning trading in Asia, refreshing the lowest level in six years. It’s trading at 6.7868 per dollar as of 12 am in Hong Kong.

Onshore yuan was trading at 6.7771 per dollar in Shanghai.

Chinese banks may have sold US dollars in the morning session to support the currency, according a Bloomberg report citing unnamed traders.

The People’s Bank of China cut the daily reference rate for the yuan by 31 basis point to 6.7736 on Thursday. Traders are allowed to trade up to 2 per cent either side of the reference rate of the day.

The currency’s recent sharp depreciation is widely viewed as mainly attributable to the significant strengthening of the US dollar on the increased prospects of an interest rate rise by the Federal Reserve this December.

“The Fed continues to ease potential election risk by suggesting the path to interest rate normalisation will be gradual, thus supporting risk sentiment in the face of an imminent hike,” said Stephen Innes, a senior trader at Oanda.

“I fully expect the Fed to reinforce this notion at next week’s FOMC, and for the Bank of Japan to keep its rates on hold, to maintain the current seemingly happy equilibrium,” said Innes.

Royal Bank of Scotland cut the target rate of the yuan per dollar to 6.9 by the end the this year from previous 6.8, saying its depreciation will not encounter too big a resistance as long as the US dollar is in the strengthening cycle.

The US dollar index, a gauge of the greenback against a basket of major currencies, is trading at 98.69, after it hit a high of 98.77 earlier tis week, the highest level since February. It broke the major resistance of 98.60 last week.