Offshore yuan falls to lowest level on record as capital outflows accelerate

Onshore yuan gains slightly after the PBOC raised the daily reference rate following 12 straight cuts

PUBLISHED : Tuesday, 22 November, 2016, 11:10am
UPDATED : Tuesday, 22 November, 2016, 11:10am

Onshore yuan strengthened against the US dollar on Tuesday morning after the People’s Bank of China set the reference point higher for the first time in 12 days.

Onshore yuan in Shanghai traded at 6.8896 to the dollar at 10.20 am, 0.05 per cent or 0.0032 points higher than the 6.8928 close on Monday. Although the rate is slightly stronger, it is still at lows not seen since June 2008.

Offshore yuan in Hong Kong traded at 6.9066 to the US dollar at 10.30 am, its weakest point ever and 0.03 per cent or 0.0018 points lower than Monday’s final price of 6.9048.

On Tuesday the PBOC, China’s central bank, set the yuan reference point against the US dollar at 6.8779 basis points or 0.26 per cent stronger than Monday’s 6.8985.

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

The yuan will continue to be pressured and will likely see some form of intervention to stem the current tide of capital outflows
Stephen Innes, senior trader, OANDA

The bank had lowered the rate for 12 consecutive trading days since November 4, and on Monday the yuan sunk to a fresh eight-year low.

Stephen Innes, senior trader at OANDA, said broader US dollar moves continued to drive the underlying momentum.

“After reaching eight-year lows as capital outflows accelerate in the face of a steeper US yield curve, the yuan will continue to be pressured and will likely see some form of intervention to stem the current tide of capital outflows,” he said on Tuesday.

He said there was some discussion that the central bank should accelerate the yuan depreciation and abandon foreign exchange market intervention so that the market could determine the real yuan value.

“At this stage, mainland capital markets are not mature enough to withstand the financial instability of such a move, and the People’s Bank of China will continue their primary task to maintain stability.”

The US dollar slipped on Monday after strengthening for 10 straight days to 13-year highs following the US presidential election. The greenback had risen on expectations President-elect Donald Trump would adopt policies which would lead to interest rate increases.

The British pound leapt more than one per cent against the USD on Monday after prime minister Theresa May hinted she would seek a transitional deal to smooth the Brexit process for businesses.