Yuan Weakens ahead of Fed rate hike

The yuan declined on Tuesday morning ahead of a meeting of the US Federal Reserve tomorrow where policy makers are expected to raise interest rates.

The offshore yuan in Hong Kong fell for a second day, down 0.11 per cent or 79 points to trade at 6.9027 as of 10.50 am. Onshore yuan in Shanghai slipped 0.08 per cent to 6.9168.

The People’s Bank of China guided the midpoint rate down by 130 basis points to 6.9118. Traders in the mainland are allowed to trade the currency within a 2 per cent range of the guided price.

The high probability that the Federal Reserve will raise its base rate at its policy meeting tomorrow is putting some downward pressure on the yuan. Investors are also awaiting Premier Li Keqiang’s annual news conference at the end of the National People’s Congress tomorrow.

“With little news overnight, what moves we saw could be attributed to pre-Federal Open Market Committee positioning,” said Stephen Innes, senior trader at Oanda, referring to the branch of the Fed that decides monetary policy. “Markets are in a holding pattern overnight ahead of the heavy docket of macro events later this week including in the US, Japan and Britain.”

The dollar was slightly up on Tuesday morning against a basket of its major peers as investors priced in the near-certainty of a rate rise. The dollar index added 0.08 per cent to 101.39 as of 10.50 am.

South China Morning Post

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Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes