Chinese yuan trading weaker for 8th straight session

PUBLISHED : Monday, 26 June, 2017, 11:53am
UPDATED : Monday, 26 June, 2017, 11:53am

Onshore yuan weakened Monday morning against the US dollar, putting the Chinese currency on course for arecord 8-day losing streak.

On the spot market in Shanghai, the US dollar bought 6.8419 yuan at 11.30am, up 0.08 per cent from 6.8366 late Friday. Before Monday, the greenback had strengthened for seven consecutive sessions, up a combined 0.7 per cent.

On June 14, the US Federal Reserve raised short-term rates by a quarter point, the third rate increase since December.

The Fed also said it planned to start unwinding the US$4.5 trillion-balance sheet, which was accumulated during and after the global financial crisis to rescue the economy. The reduction in the Fed’s balance sheet will lead to a rise in long-term interest rates.

However, analysts expect the upcoming Bond Connect scheme, which will allow overseas investors to access China’s domestic yuan debt market, will boost the yuan in the longer term.

“The Bond Connect further relaxed entry to the onshore [renminbi] market,” said Ken Cheung, an analyst with Mizuho Bank.

The Bond Connect further relaxed entry to the onshore [renminbi] market
Ken Cheung, analyst with Mizuho Bank

The People’s Bank of China announced last week temporary rules for the Bond Connect scheme, which clarified that foreign investors would be allowed to participate in onshore foreign exchange transactions.

“It appears foreign investors are flexible to use onshore or offshore yuan to purchase RMB-denominated bonds circulated in the onshore interbank market,” Cheung said.

As well as stabilising yuan sentiment, “Bond Connect will likely bring more capital inflow into the onshore bond market and in turn support the [renminbi] exchange rate”, he added.

In the offshore market in Hong Kong, the US dollar traded at 6.8493, up 0.2 per cent from Friday’s 6.8363.

Earlier in the day, the People’s Bank of China set the yuan’s mid-point rate at 6.822, stronger by 18 basis points from the previous day’s fixing rate.

The ICE US Dollar Index, which measures the greenback’s strength against six other currencies, was unchanged at 97.264.

Against the Japanese yen, the US dollar rose 0.04 per cent to ¥111.32, compared with ¥111.28 late Friday.

The euro was down 0.03 per cent to US$1.1191, while the British pound strengthened 0.2 per cent to US$1.2747.