Chinese yuan weakens but further declines seen as moderate

China’s yuan weakened on Tuesday despite the central bank setting the currency stronger, but analysts expect the decline will be moderate.

Onshore yuan in Shanghai traded slightly weaker at 6.6792 to the US dollar at 11.10am, 0.01 per cent or 9 points weaker than on Monday.

Offshore yuan in Hong Kong traded at 6.6860 to the US dollar at 11.10am, 0.01 per cent, or 5 points weaker than on Monday.

The People’s Bank of China on Tuesday set the yuan reference point against the US dollar at 6.6778, 82 basis points or 0.12 per cent stronger than on Monday.

Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

Li Chao, a research analyst at HuaTai Securities, said he expects the yuan to end its losing streak due to support from China’s economic growth, not central bank intervention.

“Chinese yuan is expected to moderately devalue or bidirectionally fluctuate in the future,” said Li in a research report.

Li added that he doesn’t believe the US Fed meeting this week will result in an interest rate hike announcement as US economic growth momentum has eased.

Citic Futures Company analyst Yin Dan agreed, saying there was a high possibility of no rate rise from the US Fed.

In other currency trading, the Japanese yen strengthened, jumping 0.91 per cent to 104.80 per dollar on hopes of monetary easing. However, Yin said the Bank of Japan may not follow market expectations to announce new monetary easing policies later this week.

The yen jumped nearly 1 per cent last Thursday and at one stage touched 107.49 – its strongest level since June 9.

The British pound also traded stronger, up 0.2 per cent to US$1.3116 on Tuesday morning while the euro strengthened, up 0.05 per cent at 1.0985.