Chinese currency strengthens for 4th day running, erasing fears of a sharp depreciation

China's yuan extended its gains against the US dollar for the fourth straight day on Wednesday as jitters over the US presidential election weighed on the greenback.

The onshore renminbi advanced 0.07 percent to trade at 6.76 against the US dollar as of 4:20 pm in Shanghai on Wednesday, while the offshore renminbi climbed 0.04 percent to trade 6.77 per US dollar in Hong Kong.

The People's Bank of China (PBOC) raised the yuan's mid-point rate by 172 basis points to 6.7562 per US dollar.

The onshore yuan has lost more than 4 percent against the greenback in the past 10 months, putting it on course to become the biggest loser among 11 Asian exchange rates tracked by Bloomberg.

For October alone, the exchange rate between the pair of currencies had declined more than 1.5 percent.

"The continued depreciation of the yuan is more of an issue about a strengthening US dollar rather than a weakening yuan," said Kelvin Lau, a senior economist at Standard Chartered Bank in Hong Kong.

"Looking ahead, the yuan's movement depends much on when and to what extent the US Federal Reserve (Fed) would increase borrowing costs, as well as post-election volatility on the US currency."

The fact that the yuan has basically stood firm against a basket of major currencies, Lau pointed out, indicated that the currency of the world's second-largest economy isn't set for a fresh bout of depreciation.

Such optimism appears to be shared among some Hong Kong investors.

According to the latest study by Standard Chartered Bank, some 70 percent of 521 local investors polled said they would continue to hold renminbi products at hand, with more than half of them believing the currency would regain its lost ground in the long run.

For the short term, at least, the yuan's depreciation remains certain. Lau said the currency would continue to weaken for the coming 12 to 18 months although the downward pressure may not be sharp.

Lau sees a slim chance of the Fed raising interest rates by yearend or earlier next year, offering some respite for the yuan's woes.

Yet, according to a Thomson Reuters survey of more than 60 currency analysts, the projection may sound much more bearish.

The survey pointed to a 70-percent possibility of a US rates hike next month, which may drag the yuan down to an all-time low since 2008 for the following 12 months.

Weber Lo, Citi's chief executive for Hong Kong and Macao, believed that the yuan's depreciation is a matter of fact. But the currency has little room to go down by the end of this year and would not be allowed to break the critical level of 6.8 against the dollar, he said.

sophia@chinadailyhk.com

(HK Edition 11/03/2016 page8)