Chinese yuan trades weaker ahead of Federal Reserve policy board meeting this week

On Monday the Chinese central bank set the yuan to 6.9086, or 0.17 per cent weaker than its fixing Friday

PUBLISHED : Monday, 12 December, 2016, 3:22pm
UPDATED : Monday, 12 December, 2016, 11:08pm

China’s currency fell against the US dollar on Monday, ahead of the Federal Reserve two-day policy board meeting which concludes on Wednesday, where interest rates will likely increase for the second time in a decade.

The onshore yuan in Shanghai traded at 6.9087 to the US dollar at 10.15 am, 0.03 per cent weaker than Friday’s close.

Offshore yuan in Hong Kong traded at 6.9285 to the US dollar at 10.15 am, 0.03 per cent weaker than on Friday.

The People’s Bank of China (PBOC) on Monday set the yuan reference point against the US dollar at 6.9086, 1.14 basis points or 0.17 per cent weaker than Friday’s fixing.

Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

The yuan has been under pressure following the election of Donald Trump and renewed strength in the US dollar.

US Treasury 10-year bonds rose to their highest levels since June last year and the US dollar index reached peaks not seen since 2004.

“The surging US dollar is causing a headache for the PBOC,” according to Stephen Innes, senior trader at Canadian foreign exchange company Oanda. “The Chinese view US investments as more attractive, leaving the PBOC struggling to stem the waves of capital outflow.”

Curbs designed to prevent yuan flows from leaking out of mainland will likely accelerate next year with the US dollar’s continued ascent, Innes said.

In other currency trading, the Japanese yen rose on Monday 0.06 per cent to 115.25 yen per dollar at 10.15 am, continuing its rally on rising bond yields.

The Fed’s meeting later this week is “the most important event for the yen,” likely to solidify the US dollar’s appreciation going forward into next year, according to Innes.

Meanwhile, the euro strengthened by 0.05 per cent to 1.0556 against the US dollar at 10.15 am.