Currency strategist expects China’s central bank to intervene as yuan weakens for seventh day
Yuan has wiped off all gains against the US dollar this year, but the currency may bounce back after US dollar loses momentum from its recent rally
The yuan extended its losses for a seventh straight session on Friday after the People’s Bank of China set the midpoint lower for a third consecutive day, but analysts expect the central bank to soon take action to stabilise the currency hit by the simmering US-China trade dispute.
The PBOC set the midpoint lower by 98 basis points, or 0.15 per cent, at 6.4804 per US dollar. The midpoint has been reduced by a combined 0.85 per cent since Wednesday, with the level now at a new five-month low.
As China does not allow the yuan to trade freely, the central bank announces a midpoint every morning for the yuan against the US dollar and other currencies, allowing it to move up or down two per cent from the midpoint during the day.
Offshore yuan dropped to 6.5155 against the US dollar in early Friday afternoon trading, down 0.32 per cent from Thursday’s close at 6.4949, taking the overall losses to 2 per cent since last Wednesday. The weak yuan was due to the traders worry about the trade war between China and US.
“During this period of escalating protectionism and rising investment tension between China and the US, the market usually reacts to bad news by causing the US dollar to appreciate against other major currencies. This will also tend to weaken the yuan against the dollar,” said Iris Pang, economist for Greater China at ING.
Pang said if the yuan keeps weakening, this could lead to capital outflows that would force the government to introduce measures to prevent this from escalating.
