Yuan strengthens as US dollar continues on downward slide

The PBOC sets its reference rate against the US dollar at the highest level in more than one month on Wednesday

PUBLISHED : Wednesday, 03 August, 2016, 12:03pm
UPDATED : Wednesday, 03 August, 2016, 12:03pm

The yuan strengthened on Wednesday as the People’s Bank of China sets its reference rate against the dollar to the highest level in more than one month.

The onshore yuan in Shanghai was quoted at 6.6269 by 11am on Wednesday, stronger than 6.6389 at the close in the previous trading day. The offshore yuan traded in Hong Kong was basically flat after rising by 0.19 per cent to close overnight trading on Tuesday at 6.6332.

The PBOC on Wednesday raised the yuan’s reference point against the US dollar by 0.4 per cent or 256 basis points to 6.6195, the highest level since June 24. Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

The dollar Index, a gauge for the strength of the greenback closed Tuesday 0.71 per cent lower after a sharp decline of 1.17 per cent on Monday. Investors have been shying away from the US dollar after last week’s disappointing second quarter GDP data for the world’s largest economy.

“The sentiment of USDCHN [offshore yuan against the US dollar] is being driven by the EUR [the euro] and JPY [the Japanese yen] strength,” said Stephen Innes, senior trader at OANDA Asia Pacific.

“With added stability to the RMB complex, investors should continue to add to their long CNH exposure, especially with the Feds apparently all but sidelined through 2016. ”

The PBOC set the mid-price of the yuan against the euro at 7.4331, weaker by 154 basis points.

The Hong Kong dollar traded at 7.7584 per US dollar as of 11am on Wednesday, stronger by 0.02 per cent.