Yuan reverses despite tenth day decline in daily fixing
Offshore yuan traded in Hong Kong recovered from a three-day drop, up 0.13 per cent, or 87 basis points, to 6.799 against the US dollar
The yuan recovered slightly after its fall to an eight-year low on Wednesday, to trade stronger on Thursday, despite China’s central bank cutting the reference rate for the tenth consecutive trading day.
China’s central bank on Thursday set the daily fixing 100 basis points, or 0.15 per cent weaker at 6.8692, the lowest level since June 2008. Trading is allowed up to 2 per cent either side of the reference point for the day.
Offshore yuan traded in Hong Kong recovered from a three-day drop, up 0.13 per cent, or 87 basis points, to 6.799 as of 5.45pm, after slipping to 6.8957 on Wednesday, the lowest level since the offshore market was launched in 2010.
Onshore yuan traded in Shanghai broke its five-day decline, rebounding from its eight-year low at 6.8770, strengthening 0.14 per cent, or 94 basis points, to trade at 6.8676 per dollar.
Both offshore and onshore yuan remained to trade below 6.86, a level regarded by officials and analysts as psychologically important despite of its rebound.
Yu Yongding, an economist at the Chinese Academy of Social Sciences said on Thursday in Beijing that the Chinese yuan is facing downside pressure now, but he does not treat the depreciation as a dreadful issue, according to China’s official news agency Xinhua.
“China’s economic fundamentals do not support the devaluation of Chinese yuan,” said Yu. “The yuan should be a strong currency.”
The currency has dropped more steeply since the unexpected US presidential election victory of Donald Trump, who has repeatedly called for trade tariffs on China and labelled the country a currency manipulator.
During the election campaign, Trump accused China of deliberately devaluing the yuan in order to make its exports unfairly competitive, and threatened to impose a 45 per cent tariff on Chinese imports.
“The US election outcome seems to have been handled reasonably well in China’s financial markets – we only saw a mild response in volatility indicators and interbank markets,” said Julian Wee, NAB senior markets strategist in Asia.
“If the US makes a concrete move towards labelling China as a currency manipulator, it could engender speculation of a trade war. The onshore yuan could climb towards 7.10 against US dollar as the market starts to price in this risk premium.”