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Categorized | Currencies

Renminbi weakens to 6.92 against dollar

Posted on November 24, 2016

The onshore renminbi exchange rate (CNY) weakened to as much as Rmb6.9235 against the dollar on Thursday, a level not seen since June 2008.

In late morning trade the onshore rate, which applies to the vast majority of the currency pool and must trade within a 4 per cent band set by China’s central bank, was 0.01 per cent weaker at Rmb6.92.

That is the weakest it’s been in more than eight years and slightly up from the close on Wednesday, when it weakened 0.42 per cent to Rmb6.9190 – finally pushing beyond the 10 per cent mark from the currency’s level before the nearly 2 per cent one-off devaluation on 10 August 2015.

Thursday’s CNY level also follows the morning fix of the midpoint for its 4 per cent trading band against the dollar at 6.90850, weaker by 0.26 per cent. Today’s fix by the People’s Bank of China was the fourteenth weakening in fifteen days, the sole exception being Tuesday.

The renminbi’s offshore exchange rate (CNH) which theoretically trades freely without reference to the band and reflects international investors’ take on the currency’s worth, was trading stronger by 0.05 per cent at Rmb6.9513, but had previously gone as high as Rmb6.9654 before the morning fix.

The renminbi is actually among the best performers against the dollar since the US presidential election on 8 November, losing less than 2 per cent while the Mexican peso has softened close to 10 per cent and the South African rand by more than 6 per cent.

But both the onshore and offshore rates are now flirting with with a threshold of Rmb7 against the greenback, and a widening spread between the two in the month so far suggests international investors are banking on continued depreciation.

While China has intervened to tighten the spread as recently as early this year, Zhou Hao, Commerzbank’s senior emerging markets economist in Asia Zhou Hao was sceptical it would step in again any time soon:

While USD-CNY and USD-CNH continues to touch multi-year highs, the CNY index remains stable, meaning that CNY deprecation is a result of a broad-based USD strength. That said, the market intervention won’t change the market direction, but could provide better time window for market to add CNY shorts. In our opinion, China’s central bank is likely to set the USD-CNY fixing rates at the lower end of the market expectations, to smooth out the market volatility somewhat.