YUAN SLIPS

Yuan slips despite PBoC move

Tuesday, November 03, 2015

The yuan retreated yesterday from its strongest level since the mid-August devaluation, even after the central bank raised the fixing rate by the most in a decade.The onshore yuan in Shanghai fell by 0.32 percent to 6.3374 against the US dollar. The fall came even after the People's Bank of China raised the yuan's fixing rate by 0.54 percent the biggest jump since July 2005 to 6.3154 against the greenback in response to the yuan's 0.62 percent rise on Friday, the sharpest surge in a decade.
Freely-traded offshore yuan in Hong Kong weakened 0.38 percent to 6.3459 per US dollar by 8.10 pm yesterday.
"[The decrease shows] People think Friday's move was excessive," said Ju Wang, a Hong Kong-based senior currency strategist at HSBC Holdings (0005). "The yuan is still facing cyclical pressure."
The Caixin China purchasing managers' index in October hit 48.3, indicating economic contraction has continued even if the Christmas season should have boosted external demand.
"Friday's jump shows the PBoC wants to prove it won't let the yuan go on declining," said William Fung Sze- yu, vice president at Southwest Securities (HK) Futures. But the yuan ultimately has to face market factors.
The yuan soared on Friday after the central bank said it might allow individuals in the Shanghai free trade zone to directly buy overseas assets and that it might allow foreign firms to trade in yuan-denominated bonds.
There were also rumors the PBoC intervened to stabilize the yuan before the International Monetary Fund decides if it will include the currency in its Special Drawing Rights basket.