Yuan little changed ahead of new year as PBOC sets rate at two week low

PUBLISHED : Wednesday, 28 December, 2016, 11:09am
UPDATED : Wednesday, 28 December, 2016, 11:09am

Chinese yuan was little changed on Wednesday ahead of the new year holidays, with onshore yuan slightly weaker than offshore yuan in morning trading.

Onshore yuan was 51 basis points or 0.07 per cent weaker to 6.9549 per US dollar at 10.23am after

the People’s Bank of China set the yuan reference rate 33 basis points weaker at 6.9495 per dollar, the weakest level in two weeks.

However, offshore yuan in Hong Kong strengthened slightly, up 34 pips or 0.05 per cent to 6.9554 against the US dollar.

Analysts expect the Chinese currency to remain steady ahead of the new year holidays.

Zhou Guannan, an analyst at Huachuang Securities, said in a research note that the depreciation pressure on the currency will be one of the most important factors to affect the capital markets in January.

If the Chinese government continues to sell US Treasury bonds, yield of US treasuries may climb higher, consequently strengthening the US dollar and dragging the yuan down further, Zhou said.

Japan has surpassed China as the largest foreign holder of US Treasuries as the Chinese government has been selling US Treasuries in its foreign reserve for seven consecutive months to shore up the yuan, according to data released by US Treasury Department earlier this month.

Additionally, Chinese households may be tempted to exchange yuan deposits at the start of the new year given that the currency will fall further, and their actions may lead to more capital outflows, Zhou said.

Each mainland Chinese citizen is allowed to convert up to US$50,000 worth of yuan to the greenback every year.