Offshore yuan hits six year low as US dollars strengthens

Propelled by the strong US dollar, offshore yuan hit its lowest point on record on Friday, breaking two critical levels of 6.75 and 6.77 against the dollar within one day, while yields on China’s benchmark 10-year government bonds also hit their lowest in more than a decade on increased concerns over economic momentum in the world second largest economy.

Offshore yuan extended its weakness by 0.4 per cent to trade at 6.7757 against the dollar as of 6.30pm in Hong Kong on Friday, its weakest level since it began trading in 2010, after it broke through the critical 6.75 mark in morning trading.

Onshore yuan was down by 0.37 per cent, trading at 6.7648, also a six year low and extending its third straight week of losses.

The People’s Bank of China (PBOC) cut the yuan’s daily reference rate against the US dollar by 0.37 per cent or 247 basis points to 6.7558, the biggest cut since August 29 this year. It is the first time since October 2010 that the yuan’s reference rate has dipped below 6.75.The PBOC allows the yuan to trade 2 per cent either side of the reference rate.

The yield on 10-year government bonds hit 2.635 per cent in afternoon trading in Shanghai, the lowest since at least 2006, according to data from Bloomberg.

The yuan’s slump comes after a strengthening of the US dollar following the European Central Bank’s decision to leave its ultra-loose monetary policy unchanged on Thursday. Meanwhile, ECB president Mario Draghi kept a wide range of options open for further stimulus in December, shooting down any talk of tapering its €1.7 trillion asset-buying programme.

The US dollar was also supported by a stronger-than-expected USexisting home sales report released on Thursday.