New | Traders need time to get used to new yuan fixing mechanism, say market experts
It will take time for currency traders to get used to the new yuan fixing mechanism, say market experts.
"Traders continue the old pattern of trading, in which the offshore yuan would trade at about 1,000 basis points while further widening to 1,500 basis points from cut-loss trades. I guess the market will continue to swing until most interest rate arbitrage positions are cut," Hang Seng Bank executive director Andrew Fung said.
On Wednesday, the onshore yuan was trading at 6.3870, down 1.01 per cent from Tuesday's close, and was at its weakest level since August 2011 after losing 1.83 per cent on Tuesday.
The offshore yuan was trading at 6.5192, down 2.05 per cent from Tuesday, after being down 2.8 per cent from Monday.
Under the new fixing method, the People's Bank of China will set the mid-price of the yuan with reference to the previous close, currency supply and overnight US dollar trading figures. Dealers can trade 2 per cent above or below the mid-price.
Heng Koon-how, foreign exchange strategist at Credit Suisse private banking, said all currency traders were monitoring the new fixing method on Wednesday.
"It does appear that the fixing rate has taken the full extent of [Tuesday's] spot move," Heng said, adding this showed the PBOC is keen to give market forces a greater play in determining the level of the yuan.
He has adjusted his 12-month forecast for the yuan to 6.33 to the US dollar, from a previous 6.20.
"Onshore yuan will remain volatile in the coming few days. But as we look back at this moment next year, we will appreciate that this is indeed an important market reform for the currency," Heng said.
