Yuan slides as strong US jobs data cements imminent rate rise expectations

Markets now see a 91 per cent probability that the Federal Reserve will raise interest rates this month, according to data from CME Group

PUBLISHED : Thursday, 09 March, 2017, 12:08pm
UPDATED : Thursday, 09 March, 2017, 12:08pm

The Chinese yuan slid on Thursday in the offshore market, after the US dollar jumped on the back of a much stronger-than-expected US jobs report, which solidified expectations of a Fed rate increase next week.

The offshore yuan fell sharply against the US currency, down as much as 0.2 per cent to 6.9291. It was changing hands at 6.9264 at 11.30am, compared with 6.9162 late on Wednesday.

So far this month, the rate has depreciated 1.2 per cent on rising hopes of an imminent US rate increase and expectations that Beijing may be ready to embrace more volatility in the yuan this year.

In the spot market in Shanghai, the yuan also weakened significantly, falling 0.1 per cent to 6.9189, compared with 6.9131 in the previous session. It looked likely to extend a three-day losing streak.

Before the market opened on Thursday, the People’s Bank of China cut the yuan’s daily guidance rate to 6.9125, down 93 basis points from the previous day. That’s the lowest level in nearly two months.

Traders are allowed to buy or sell the yuan within a 2 per cent range of the daily official fixing rate.

The yuan’s sharp fall came amid broad-based US dollar strength.

The ICE US Dollar Index, which gauges the greenback against six currency peers, rose further to 102.13 on Thursday morning, up 0.06 per cent from late Wednesday.

“The USD index was seen responding in expectation of the next Fed hike,” said Jingyi Pan, a strategist for IG Group.

On Wednesday night, the ADP National Employment report showed the US private sector added 298,000 jobs in February, shattering market expectations.

The ADP report is regarded as a precursor to the closely-watched official non-farm payrolls data, which usually comes on the first Friday of every month.

“It [the ADP report] certainly appears to be suggesting that the Fed would not have the labour market update to worry about, but instead be armed with more impetus to raise rates in the next meeting,” Pan said.

The Federal Reserve will hold its next policy meeting on March 14 and 15.

The probability of a rate increase coming out of that meeting is now up to 91 per cent, according to the CME Group’s FedWatch Tool, which reflects market expectations.

Against the Japanese yen, the US dollar strengthened 0.07 per cent to ¥114.43.

The euro and sterling both dropped against the greenback, down 0.04 per cent and 0.02 per cent respectively to US$1.0537 and US$1.2166.