Yuan’s overall losses widen to 5pc as it extends decline for 13th straight session

PUBLISHED : Monday, 02 July, 2018, 12:11pm
UPDATED : Monday, 02 July, 2018, 9:01pm

The yuan’s losses has increased almost 5 per cent as the currency has lost value against the US dollar for the 13th straight trading day on Monday even as the People’s Bank of China set the yuan midpoint higher, the first upwards adjustment in nine days.

Analysts believe that yuan weakness will remain a theme ahead of US trade tariffs on Chinese goods set to come into effect on Friday.

The offshore yuan traded by international investors stood at an 11-month low of 6.6786 per US dollar on Monday evening, down 0.7 per cent from the previous session.

On Friday, the offshore yuan eased to 6.6521 per dollar, but bounced back to close at 6.6339.

The currency has fallen for 13 straight trading days, reflecting the longest losing streak since the offshore yuan market started in 2010. The currency has lost 4.6 per cent since June 14.

The offshore yuan is usually traded stronger than its onshore counterpart, however it is currently 194 basis points weaker. The onshore yuan was quoted at 6.6592 per US dollar on Monday, down 0.6 per cent from its previous close.

Offshore yuan drops faster than onshore currency as trade war fears, central bank policies spook international investors

The PBOC set the yuan midprice higher by 9 basis points or 0.01 per cent on Monday at 6.6157 per dollar. International traders take the successive weaker settings by the Chinese central bank previously setting the midprice down eight straight session to be a signal for a weaker yuan.

The yuan is permitted to trade up to 2 per cent on either side of the PBOC’s daily midprice setting.

Morgan Stanley Asia expects the onshore yuan will ease to the 6.65 level by the third quarter and rebound to the 6.60 level by the end of the year.

“Onshore yuan may overshoot with shifting market expectations of policy stance amid higher trade tensions, but we don’t expect policymakers to encourage material yuan depreciation. The PBOC could step up intervention if depreciation risk intensifies,” said Robin Xing, an economist at Morgan Stanley Asia in a research note on Monday.

China’s central bank has its eye on the bigger picture as it allows market forces to dictate speed of yuan declines

“That said, the possibility that the market may continue to misinterpret PBOC policy fine-tuning and subdued sentiment may lead to overshooting risks of onshore yuan in the near term. For instance, if the trade-weighted onshore yuan index were to reverse all the divergence with the dollar from February to mid-June, onshore yuan against the US dollar could depreciate another 3 per cent or more, to 6.8 to 6.9,” Xing said.

“However, we believe that the PBOC is unlikely to encourage material currency depreciation. Instead, policymakers could tolerate some modest depreciation in onshore yuan amid broad US dollar strength, but we think yuan will not depreciate materially out of line with the trade-weighted US dollar trend,” Xing said.