Chinese yuan weakens following biggest drop in reference rate in six months

Authorities set the mark 0.87 per cent or 594 point lower than last Friday, the biggest daily decline since late June in 2016

PUBLISHED : Monday, 09 January, 2017, 2:04pm
UPDATED : Monday, 09 January, 2017, 6:09pm

The yuan weakened on Monday afternoon after its mid-point was set at its lowest level in half a year.

China’s authorities sets the mark 0.87 per cent or 594 point lower than last Friday, the biggest daily decline since late June in 2016. Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

Ming Ming, chief fixed-income analyst at Citic Securities, said the stronger fluctuation of the Chinese currency’s mid-points represented a policy to curb one-way depreciation and stabilise the exchange rate through adjusting the yuan’s daily reference rate.

The Hong Kong Interbank Offered Rate for offshore yuan, known as the CNH Hibor, plummeted to 14.05 per cent from last Friday’s 61.33 per cent, down 4,728 points.

The onshore yuan in Shanghai slipped for a second day, trading at 6.9335 at 5.30pm on Monday, dropping 0.24 per cent. .

Offshore yuan in Hong Kong traded at 6.8842 to the US dollar, down 0.49 per cent.

The Chinese yuan has been highly volatile so far this year. Last week, offshore yuan scored its biggest two-day gain in history, 2.47 per cent on Wednesday and Thursday, but slid last Friday and continued to weaken on Monday.

“It has been a tortuous start to the year on the offshore yuan trading desk as funding conditions continue to wrong foot market participants,” said Stephen Innes, senior trader at Oanda in the latest report.

“Despite some semblance of order emerging, we should expect volatility to remain high.”

Innes also expects the underlying yuan depreciation pressures to return “because the fundamental reasons that are driving depreciation, such as capital outflows and concerns on Trump’s China policies, haven’t changed”.

“Although the offshore yuan moves have put traders on edge, the global impact is not in the same league as the turmoil created last year,” added Innes.

“Moreover, as history so often repeats itself in the forex world, we should expect the yuan to resume its course of depreciation post Trump’s inauguration and at the latest past the Lunar New Year.”

In other currency trading, the pound was down 1.07 per cent, trading at US$1.2149 on Monday afternoon while the Japanese yen fell 0.08 per cent to 117.00 against the US dollar.