BEIJING: China’s yuan traded on Monday at a one month low after the People’s Bank of China set the daily mid price weaker against the US dollar.
The onshore yuan traded at 6.3635 early on Monday, which is down 0.17 per cent from the Friday close and was the lowest in a month and the weakest level since 6.3685 on September 28.
The offshore yuan also traded lower at 6.3924, down 0.3 per cent from Friday’s close. The offshore yuan last Friday also touched its lowest level in a month at 6.3930.
The People’s Bank of China on Monday set the mid price of the yuan against the dollar at 6.3578, weaker by 119 basis points from Friday’s mid-price fix. Traders are allowed to trade the yuan two per cent above or below the mid price.
Heng Koon-how, senior foreign exchange strategist at Credit Suisse private banking, said the softer yuan came as a result of weak economic data in mainland China and uncertainty whether the yuan can be added into the Special Drawing Rights of the International Monetary Fund. The SDR basket is currently made up of the euro, yen, US dollar and pound.
“The onshore yuan weakness this week is because of growing disappointment over the slow progress in the IMF’s SDR review process. It is still uncertain when the IMF’s executive committee will meet to decide on this. And with each day’s delay, the market has got impatient, as such, the onshore yuan (CNY) is weaker,” Heng said.
“On top of this, the weak set of October trade figures for China has added to increased expectations of further monetary easing from the People Bank of China. We cannot rule out yet another round of reserve requirement ratio and interest rate cuts from PBOC before end of the year. This has pressured the yuan as well.”
Heng said the onshore yuan is likely to drift towards 6.40 against the US dollar and it may go even weaker if there is a delay of the IMF SDR vote to next year.
“We still see mild CNY weakness towards 6.60 over the next 12 months,” Heng said. “Depreciation pressure on the CNY has returned yet again. This is clear from the renewed widening in the spread between the onshore yuan and the offshore yuan.”
Both forwards for the onshore yuan (CNY) and offshore yuan (CNH) have weakened further past the 6.50 level and towards 6.55.
