Onshore Chinese yuan falls further after touching eight-year low

PUBLISHED : Wednesday, 04 January, 2017, 11:12am
UPDATED : Wednesday, 04 January, 2017, 4:07pm

The onshore Chinese yuan extended its decline Wednesday morning after the People’s Bank of China cut the currency’s daily fixing to the weakest since 2008.

The spot market was changing hands at 6.9553 per US dollar at 10.55am. It closed at 6.9557 on Tuesday afternoon, the lowest level in more than eight years.

In late night trade on Tuesday, the onshore yuan touched 6.964 per dollar.

In offshore markets, the yuan was trading at 6.9497 per dollar at 10.55am on Wednesday, compared with 6.9591 in late night trade on Tuesday.

The People’s Bank of China (PBOC) on Wednesday set the yuan’s mid-point rate versus the greenback at 6.9526, the weakest level since May 2008. On the previous day, the PBOC lowered the fixing by 0.2 per cent at 6.9498 per dollar.

The PBOC only allows the onshore yuan to move a maximum 2 per cent from its mid-point rate in daily trading.

In 2016, the onshore yuan lost 6.6 per cent against the dollar, the biggest annual drop since 1994.

“In our view, the major force behind RMB’s recent weakness was the strong dollar effect, rather than significant changes in RMB fundamentals,” said Lynn Song and Yao Wang, analysts for China Merchants Securities, in a recent research note.

“In 2017, as the Fed has resumed its rate increase cycle and Trump’s win has brought upbeat sentiment towards the US economy, we expect the depreciation pressure on RMB against USD to continue, and the USD/CNY exchange rate could cross the psychological level of 7 during the first quarter of 2017,” they said.

Amid expectations of further depreciation, yuan’s borrowing costs continued to rise in overseas markets. The overnight Hong Kong Interbank Bank Rate for offshore yuan, or CNH Hibor, jumped to 17.7584 per cent on Tuesday, the highest level in more than three months.