You are here

Yuan drops to one-week low on weaker PBOC fixing, Euro decline

Monday, July 6, 2015 - 11:21
HINA56456.jpg
China's yuan fell to its lowest level in a week as the central bank cut its reference rate and a decline in the euro after Greek voters rejected further austerity measures boosted demand for the dollar.

[BEIJING] China's yuan fell to its lowest level in a week as the central bank cut its reference rate and a decline in the euro after Greek voters rejected further austerity measures boosted demand for the dollar.

Sixty-one per cent of Greeks backed Prime Minister Alexis Tsipras's call to say 'No' to further spending cuts and tax increases in a referendum, increasing the risk of the nation's exit from the currency union. A gauge of the US dollar advanced 0.3 per cent as the euro dropped to a one-week low. The People's Bank of China would provide liquidity for margin trading, China's securities regulator said on Sunday as officials intensified efforts to stop equity losses.

"The Greece rejection is a surprise and it spurred demand for the dollar, which now acts like a safe-haven investment," said Aaron Chan, director of retail sales at ADS Securities Hong Kong Ltd. "The yuan will depreciate mildly as the PBOC adds cash to the market to stimulate the economy and stabilize the stock market." The yuan, which is constrained by a daily central bank fixing, declined 0.03 per cent to 6.2078 a dollar as of 10:36 am in Shanghai, China Foreign Exchange Trade System prices show. It dropped to 6.2085 earlier. The PBOC set its fixing 0.02 per cent lower than Friday at 6.1172, the weakest level since June 10.

The PBOC will offer China Securities Finance Corp, which manages the nation's short selling and margin trading, liquidity support, according to a statement on the China Securities Regulatory Commission website Sunday. Over the weekend, China also suspended initial public offerings and brokerages pledged to buy shares amid steps to stabilize the stock market.

If the central bank becomes the main source of market- supporting liquidity, its credibility will be hurt and the yuan may come under pressure, Bank of America Merrill Lynch strategists led by David Cui wrote in a note Monday.

The offshore yuan in Hong Kong, which trades freely, fell for a second day, dropping 0.05 per cent to 6.2096 a dollar. The gap between the onshore spot rate and the fixing was 1.5 per cent, within the 2 per cent limit.

BLOOMBERG

Powered by GET.comGetCom