FXStreet (Mumbai) – China’s central bank (PBoC) today set a firmer mid-point rate for the yuan at 6.5616 per dollar, firmer than the previous fix of 6.563 yesterday’s closing quote 6.5743. The PBoC probably wanted to send out a signal that it does not intend to devalue the currency further as expected broadly by the markets. Beginning August, the yuan has shed 5 per cent of its value against the dollar on account of continuous depreciation.
The Chinese central bank last week guided the yuan lower twice primarily to help exporters. The first trading days of 2016 saw the PBOC depreciate the yuan to its weakest in almost five years in the onshore markets. The fall of value of yuan in onshore market prompted traders to weaken the currency in the off shore market as well.
Offshore yuan weakened today even though the PBoc fixed the exchange rate higher. A dealer at a foreign bank in Shanghai told Reuters “The onshore yuan weakened in early trade, taking cues from the offshore yuan. The offshore was down probably because liquidity improved”. China’s yuan dropped in the offshore trade and with today’s decline the yuan erased the gains earned earlier in the week supported by PBoC’s efforts to prop up the currency. Following the PBOC’s intervention since last Friday, the offshore yuan was noted to have risen 1.1 per cent through Wednesday.
The spot market saw yuan being traded at 6.5898 in the early afternoon. This rate is 155 pips weaker than the previous close. The offshore yuan was also noted to be trading 0.3 per cent below the onshore spot. The separate rates prevalent in onshore and offshore markets signify the difference between the value of currency in China and the one abroad. This widening of the difference had last week caused the PBoC to intervene in the forex market last week.
Traders noticed state-owned Chinese banks selling dollars and buying yuan throughout yesterday to ensure offshore yuan stayed at a level which is at par with the onshore yuan.
China’s main stock indexes fell. The Shanghai Composite Index was trading down 1 per cent and the CSI300 index was down 0.6 per cent. There was however some improvement noted in the afternoon session. The Shanghai Composite Index moved up 0.9 per cent on the previous day and the CSI300 index was up 1.1 per cent. China’s stock markets remain sharply down and is only a few percentage points above the lowest level reached during the market crash seen in 2015.
(Market News Provided by FXstreet)