China strengthens yuan by most in five weeks as Fed interest rate outlook dims

PUBLISHED : Monday, 06 June, 2016, 12:05pm
UPDATED : Monday, 27 June, 2016, 11:51am

The People’s Bank of China strengthened the yuan fixing by the most in five weeks on Monday, after the US dollar tumbled on expectations that the Federal Reserve is less likely to raise interest rates soon in the wake of weaker-than-expected jobs data.

The PBOC set the yuan’s reference rate at 6.5497 versus the greenback, stronger by 296 points from the previous fixing. It was also the biggest jump in the Chinese currency fixing in five weeks. On Friday, the yuan fixing was weaker by 105 points at 6.5793.

Onshore yuan in Shanghai traded at 6.5632 against the US dollar at 10.30am, stronger by 0.01 per cent or 6 pips from the previous close on Friday.

Meantime, offshore yuan in Hong Kong gave up some gains from the previous session, weaker by 0.35 per cent or 226 pips to 6.5636. On Friday night, the offshore rate jumped by the most in five months to 6.5410 versus the US dollar, after the US dollar tumbled against major currency rivals following the release of a surprisingly weak jobs report.

“The probability of a June rate hike implied by Fed fund futures fell to 4 per cent from a high of 34 per cent last week,” said Stephen Innes, senior trader at OANDA Asia Pacific.

“Given the recent build up in Short CNH (offshore yuan) and CNY (onshore yuan) leading up to Friday’s NFP (non-farm payrolls), we could see increased yuan short covering if the fix moves aggressively lower,” he said, “Traders will turn the focus to the US/China Strategic & Economic Dialogue meeting on 6-7 June.”