In the wake of stronger Dollar, the People’s Bank of China (PBoC) has fixed Yuan exchange rate to lowest since January 2011 that shows the vulnerability of Yuan against Dollar appreciation. Onshore Yuan that is allowed to trade within 2 percent band from the central point set by PBoC, was fixed at 6.6001 against Dollar today, weaker by 0.32 percent. Onshore Yuan closed against Dollar on Tuesday 0.17 percent weaker.
Onshore Yuan that is not subjected to a trading band and largely traded in Hong Kong has now weakened 6.608 per Dollar, which is the weakest since January. In January, fearing weakness and turmoil in the Chinese economy, market participants pushed offshore Yuan to trade as low as 6.76 per Dollar. At the same time, spread between offshore and onshore counterpart reached record at 2 percent.
Latest estimate suggests, People’s Bank of China has already spent about $470 billion in foreign exchange intervention to keep Yuan stable against Dollar. China’s foreign exchange reserve declined to $3.19 trillion in May 2016 from its peak $3.993 trillion in June 2014.
Recent Chinese data provide evidence that weakness still persists in Chinese economy despite the introduction of fresh stimulus worth trillions of Dollars from the government, which makes its currency vulnerable to further strengthening in Dollar.
We at FxWirePro, expect Yuan to decline further once FED hike path steepens and to trade as low as 7 per Dollar.
The material has been provided by InstaForex Company – www.instaforex.com