Chinese yuan flat, euro up ahead of ECB meeting

PUBLISHED : Thursday, 08 December, 2016, 12:41pm
UPDATED : Thursday, 08 December, 2016, 12:41pm

The Chinese yuan reacted quitely on Thursday morning after official data showed a continuing decline of its foreign reserves in November.

Onshore yuan in Shanghai was 0.01 per cent or 9 basis points lower at 6.8789 as of 11.00am on Wednesday, while the offshore yuan in Hong Kong traded at 6.8929 to the US dollar at 11.00am, 0.04 per cent, or 26 basis points stronger.

The People’s Bank of China on Thursday set the yuan reference point against the US dollar at 6.8731, 77 basis points or 0.12 per cent stronger from its fixing Wednesday.

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

Figures published on Wednesday showed China’s foreign exchange reserves fell by US$69.1 billion to US$3.05 trillion in November, the largest drop since January. And it marked the lowest level since March 2011. The forex reserves’ decline result from China selling US dollars to defend the yuan against depreciation caused by capital outflows.

“However, actual underlying outflows may have been larger,” said UBS economist Wang Tao. “Yuan’s depreciation and increased capital outflows have tightened domestic liquidity, which China’s central bank has been reluctant to fully offset.”

Capital outflow controls have been reportedly further tightened since late November, targeting mainly domestic companies’ outbound investment and offshore lending. “We think controls can and will likely be tightened further, including higher reserve requirement on forward transactions and stricter document verification of foreign exchange transactions,” Wang added.

The euro strengthened for the second day, up 0.17 per cent to 1.077 against dollar ahead of European Central Bank’s policy meeting.

Reuters reported that the ECB is expected to announce a six-month extension to its quantitative easing programme on Thursday, while keeping the size of asset purchases unchanged at 80 billion euros, according to a majority of economists polled by Reuters.