Yuan hits over four-month low in offshore trade

London, December 29

Offshore rates for China’s yuan fell today to their weakest since a hefty two-day devaluation in August, mirroring a fall in onshore rates, with traders citing strong year-end dollar demand.

Sweden’s crown meanwhile hit a nine-month high against the euro as investors bet that the country’s economy would continue to improve and that its central bank would hold off from cutting interest rates further for the time being.

Trading was thin, however, with many traders away for the Christmas holiday season.

The dollar was 0.1 per cent higher against a basket of major currencies ahead of US house price and consumer confidence data, which is expected to show a rise.

“In a low liquidity environment, a potential improvement in a measure that foreshadows US consumption could boost the dollar at least temporarily,” wrote analysts from broker IronFX.

The greenback strengthened around 0.2 per cent against the yuan in offshore trading, to 6.5800 yuan. That was its strongest against the Chinese currency since August 12.

Commerzbank Currency Strategist Thulan Nguyen, in Frankfurt, said this was a continuation of depreciation trend in the yuan since it was included in the International Monetary Fund’s benchmark SDR reserves basket.

“The PBoC (People’s Bank of China) is just letting it ease gradually,” said Nguyen. “I think they realise now that the best long-term strategy is to let it depreciate, because that will support the economy.”

Earlier, the yuan briefly touched a four-and-a-half-year low in onshore trade. Traders said it had been dragged down by strong dollar demand, as corporates typically need extra dollars to settle business at the year-end.