The Hong Kong dollar recovered on Wednesday morning while the yuan fell for the second day in a row, with analysts saying it remains on a weakening trend.
The Hong Kong dollar traded at 7.7889 per US dollar at 10.10 am on Wednesday, up 0.06 per cent from Tuesday, when at one stage it was down to 7.8011.
The local currency is trading more stably this week after a bumpy ride last week when it hit 7.8294, an eight-and-a-half-year low. The Hong Kong dollar bounced back after some big buying orders, which currency traders believed was the Hong Kong Monetary Authority taking action to prevent the currency from falling too low, pushed the currency to trade above 7.80 level from Thursday of last week.
Offshore yuan softened on Wednesday to trade at 6.6101 per US dollar at 10.10 am, down by 0.03 per cent from Tuesday, when it fell 0.02 per cent. The currency rose 0.07 per cent last week after a strong gain of 1 per cent the previous week on People’s Bank of China intervention.
A DBS report said the offshore yuan has been on a weakening trend. The PBOC injected liquidity into the financial system to solve the liquidity crunch ahead of the Lunar New Year on February 8.
“Notably, the authorities are aware that financial conditions are tightening (the lead up to the Chinese New Year also exacerbates the crunch) and are regularly injecting liquidity into the financial system,” the DBS report said. “Without these liquidity injections, onshore interest rates would have been much higher as the People’s Bank of China intervenes to stabilise the currency. The risk of a negative feedback loop building is rising. Without a clear outlook, the equity market and currency may be prone to sell-offs, putting upward pressure on onshore interest rates.”