Chinese yuan rebounds against the dollar

Currency’s decline to more than five-year lows on Monday came after data showed a surge in domestic loan growth

PUBLISHED : Tuesday, 19 July, 2016, 11:15am
UPDATED : Tuesday, 19 July, 2016, 10:58pm

The yuan rebounded on Tuesday afternoon after falling through the important technical level of 6.7 to the US dollar on Monday.

The onshore yuan in Shanghai stood at 6.6902 against the greenback at 6.10pm, 0.17 per cent or 113 basis points stronger from a day earlier.

It officially closed at 6.6893 at 4.30 pm, up nearly 0.2 per cent from Monday. Markets keep trading until 11.30 pm to overlap with Europe’s trading day.

The offshore yuan in Hong Kong also strengthened, up 53 pips or 0.08 per cent to 6.7038 per dollar at 6.10 pm.

The People’s Bank of China on Tuesday set the yuan reference point at 6.6971 against the US dollar, down 10 basis points from Monday’s fix, and its lowest level in almost six years.

Trading is allowed at up to 2 per cent either side of the reference point for the day.

On Monday, the onshore yuan hit 6.7096 per dollar in evening trade, breaching the critical technical level of 6.7 for the first time since September 2010, according to data from Reuters.

The yuan’s sharp decline to more than five-year lows on Monday came after data showed a surge in domestic loan growth. The drop aggravated investors who have been rattled by slow global growth and a potential fallout from Brexit, but on Tuesday the Chinese yuan appeared more resilient.

“The onshore yuan is still in a depreciation channel. Fundamentals, such as China’s slowing economic growth and natural capital outflow remain unchanged. The central bank also seems to tolerate the gradual weakening of yuan,” said Tommy Ong, DBS Hong Kong’s executive director of wealth management solutions.

“But speculative activities have reduced a lot. We did not see many short sellers of yuan in the offshore market,” Ong said.

He said a level of 6.83 against the US dollar is critical for the onshore yuan, where it has hovered since the financial crisis of 2008.

On the international markets, the British pound was down 0.5 per cent to US$1.3182 on Tuesday, reflecting a reversion from its recent rising streak. The Japanese yen strengthened 0.05 per cent to 106.07 against the greenback, after it dropped to a one-month low at 106.32 per dollar on Monday.