Yuan retreats after recent gains despite stronger fix

Analysts expect the Chinese currency to be stable ahead of the G20 Summit in early September

PUBLISHED : Friday, 19 August, 2016, 11:49am
UPDATED : Friday, 19 August, 2016, 11:49am

The Chinese yuan weakened on Friday morning, retreating from the previous day’s gains, despite the People’s Bank of China setting the daily fixing rate higher.

The onshore yuan in Shanghai dropped 0.16 per cent or 105 basis points to 6.6402 against the US dollar in morning trading. The offshore yuan in Hong Kong fell 0.2 per cent or 131 basis points to 6.6442 per dollar.

The People’s Bank of China on Friday set the yuan’s mid-point rate slightly stronger against the US dollar at 6.6211, up 62 basis points or 0.09 per cent from Thursday’s fix. So far this week, the onshore yuan has lost 0.12 per cent, compared with the previous week’s 0.31 per cent gain.

“With little motivation from Chinese political musings, traders are taking the US dollar random walk with no apparent discernible pattern or trend,” said Stephen Innes, senior trader at Oanda, in a research note on Friday.

“While traders are not looking to fall into a value trap ahead of the next broader US dollar move, I suspect there will be little interest until September, when speculators will start shaking the trees again,” he said.

Analysts from JP Morgan Asset Management also said recently that the yuan may remain relatively stable ahead of the G20 Summit in early September.

For other currencies, the Japanese yen weakened 0.32 per cent to trade at 100.19 per US dollar, halting a five-day winning streak. The euro dropped 0.14 per cent to US$1.1336 after five consecutive days of gains. The British pound moved down 0.24 per cent to US$1.3134.

However, as it seems the US Federal Reserve officials are divided over whether to raise interest rates in the near term, the greenback may still remain weak in the coming days, analysts said.

“I expect increasing chatter among the Federal Reserve decision makers as we approach the August 26 Jackson Hole Symposium. Ultimately, in a middling global economic environment, if recent history tells us anything about the current Fed board, the preferred risk control approach is to delay interest rate hikes,” Innes said.