Yuan falls to four-month low offshore
The yuan fell to four month-lows in the offshore market on Wednesday as a deepening stock market rout prompted investors to cut their long positions in the mainland currency.
Concerns that a broader equity market rout would spread to other asset classes such as currencies and bonds spurred some hedge funds who had bought the yuan in the spot and the forward markets to cut their positions.
“The street has been broadly long CNH and some of those positions are being squared,” said the head of currency trading at a US bank in Hong Kong.
Falling for the fourth straight session, the offshore yuan touched its weakest level since March 18, changing hands at 6.2188 per US dollar by midday, down 0.02 per cent from the previous close. In the onshore market, the spot yuan was flat at 6.2099 against the US dollar at midday.
Traders said the onshore yuan was unlikely to break the 6.21 per US dollar level as the mainland’s central bank had showed its determination to maintain a stable currency.
The People’s Bank of China set the midpoint rate at 6.1175 per US dollar before the market opened, 0.01 per cent weaker than the previous fix at 6.1166.
Signs of panic were evident in early trading with both offshore deliverable and non-deliverable forwards in the mainland currency gapping lower as stock markets plunged more than 7 per cent at the opening bell.
The stock market slump has likely increased the risks of a financial crisis on the mainland considerably and also brought forward the timeline of a crisis, Bank of America Merrill Lynch said in a research note.
The US dollar and yen gained on Wednesday with investors seeking the perceived safety of those currencies as Asian equities fell across the board and hurt risk appetite.