Yuan touches fresh 5-year low in Shanghai

The onshore yuan closed at 6.6636 per US dollar at 4.30pm Monday, weaker by 89 basis points or 0.13 per cent

The Chinese yuan touched a fresh five-year low in Shanghai on Monday, extending its losses for a third straight trading day as traders said the People’s Bank of China could continue to let the currency depreciate this year as Brexit heightens global economic uncertainty.

The onshore yuan closed at 6.6636 per US dollar at 4.30pm, weaker by 89 basis points or 0.13 per cent from its close in the evening trading session on Friday. Earlier in the day, the currency touched 6.6660, a fresh low in five and a half years. As of Friday, the onshore yuan had declined against the greenback for four consecutive weeks.

The offshore yuan in Hong Kong at one point on Monday hit 6.6820 per dollar, its lowest level since January 8.

“I expect that China will face additional economic headwinds from the Brexit fallout, so we should expect further yuan weakness throughout 2016,” said Stephen Innes, senior trader for Oanda Asia Pacific.

On Friday, China reported that the official Purchasing Managers’ Index (PMI) dropped to 50.0 in June, down from 50.1 in May, suggesting a deceleration in the country’s manufacturing activity. The Caixin China manufacturing PMI, a separate private gauge of the country’s factory activity, dropped to 48.6 in June from 49.2 in the previous month, reflecting the biggest fall in four months.

The People’s Bank of China (PBOC) on Monday set the yuan’s mid-point rate at 6.6472 against the US dollar, stronger by 24 pips or 0.04 per cent from Friday’s fixing. On Friday, the PBOC guided the yuan lower by 184 pips or 0.28 per cent from the previous reference rate.

Larry Hu, an analyst for Macquarie Securities, said the PBOC might want to leverage Brexit as an opportunity to guide the yuan lower in an effort to boost exports. He added that capital outflows have cooled, easing pressure for the central bank to depreciate the currency.

“Capital outflows are set to be lower this year as hot money has largely been exhausted after six quarters of outflows from the third quarter of 2014. For domestic money, capital controls are reasonably effective,” he said.

Hu predicted the onshore yuan will see a 5 per cent fluctuation against the dollar in 2016 and would end the year at 6.6.

Source: http://www.scmp.com/business/markets/article/1985103/yuan-touches-fresh-5-year-low-shanghai-extending-downward-slide