China’s yuan fell to more than eight-year lows against the dollar on Friday, in line with a broader retreat among Asian currencies, after Federal Reserve Chair Janet Yellen raised expectations for a U.S. rate hike in the short term.
Donald Trump’s surprising win at the U.S. presidential elections last week has fuelled a broad rise in the dollar on expectations of more fiscal stimulus to boost the economy, and the Fed’s latest comments added fresh legs to the rally. Yellen said on Thursday that the Fed could raise rates “relatively soon” if economic data keeps pointing to an improving labour market and rising inflation.
“We believe comments and remarks from Yellen are supportive of the dollar in the months ahead,” Gao Qi, Asian FX strategist at ScotiaBank wrote in a note. From last Wednesday’s lows, the dollar has rallied more than 5 percent against a basket of currencies on a trade-weighted basis.
The Chinese yuan has fared relatively better than some of its Asian counterparts, such as Malaysia, though analysts say likely state intervention has stemmed the weakness. The People’s Bank of China set the midpoint rate at 6.8796 per dollar prior to market open, weaker than the previous fix 6.8692.
The spot market opened at 6.8890 per dollar and was changing hands at 6.8905 at midday, 185 pips weaker than the previous late session close and 0.16 percent away from the midpoint. It is trading at its lowest levels since June 2008.
The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.33, firmer than the previous day’s 95.13.
The global dollar index rose to 101.24 from the previous close of 100.89. The offshore yuan was trading 0.29 percent weaker than the onshore spot at 6.9104 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 7.102, 3.13 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.