The sharp depreciation of the yuan against the US dollar over the past year has significantly dampened investors’ appetite for the currency. The yuan weakness accelerated after Donald Trump’s surprise win in the election for US president, an outcome that strengthened the greenback due to increased inflationary expectations in the US.
However, the Chinese currency started to show some signs of stabilisation earlier this week after an official from the Chinese central bank talked up the yuan last weekend and raised the prospect of possible intervention in the foreign exchange market earlier this week.
The yuan has weakened more 7 per cent since the same period last year and has declined by more than 4 per cent since China’s golden week holiday in October. On Wednesday evening, offshore yuan strengthened 0.2 per cent to 6.8994 per US dollar and onshore yuan was trading 0.13 per cent higher at 6.8821 per US dollar.
As the market is still dominated by a strong depreciation expectations for the yuan, the currency could decline even further.
“Since the US election, mainland Chinese appetite for all things in US dollars has accelerated, as the population seeks out creative measures to get their money out of China and into the US dollar,” said Stephen Innes, senior trader at Oanda.
Separately, statistics also showed that cross-border trade settlement amounted to 309.4 billion yuan for October compared with 382.9 billion yuan in September. Meanwhile, overall foreign-currency deposits in Hong Kong grew by 0.4 per cent in the same period.
Total deposits with authorised institutions increased 0.6 per cent in the city while Hong Kong-dollar deposits rose 0.9 per cent during the month due to increases in demand, savings and time deposits, said the HKMA.