The central parity rate of the Chinese yuan weakened 99 basis points to 6.5889 against the USA dollar Wednesday.
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Chinese renminbi dropped to near five-year lows in Shanghai spot market despite the authority boosting yuan daily reference rate as a response to overnight weakness in the greenback. An increase in the benchmark USA interest rate would be appropriate “probably in the coming months” if economic data continued to strengthen.
In a sign that people are less willing to hold the Chinese currency, the yuan fell to sixth place from fifth as a global payments currency in April, trailing the Canadian dollar, according to SWIFT, the global provider of financial messaging services. According to analysts, the U.S. payroll data, scheduled to be released later today, would decide the rate hike this month.
On the day following the policy change, the central parity rate of the yuan weakened sharply to 6.2298 against the USA dollar, down almost 2 percent to the lowest point since April 2013.
Investors are now predicting a 53 per cent chance the Fed will raise interest rates at its July meeting, up from 26 per cent a month ago.
The fall came after US Federal Reserve Chair Janet Yellen said at Harvard University on Friday that an interest rate hike in the next few months would probably be appropriate if economic data improves. Usually an interest rate hike in United States leads to depreciation in Chinese currency – as then, high-yield seeking investors invest more in the dollar.
The Chinese currency has fallen almost 2% against the dollar since the start of May, but the market remains calm under the prevailing view that no dramatic movements are likely in the near term.
China’s central bank on Friday denied a media report that it was retreating from allowing the yuan to trade in a more market-oriented way.
In the onshore market, yuan slipped to 6.5786 against the dollar, as of 12:40 PM local time.
China’s central bank is tightening risk controls in the burgeoning market for loosely regulated shadow lending.
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In addition, the non-major has also cracked down on foreign lending income from nine currencies, in particular the Chinese Yuan.
