Yuan eases, heads for biggest yearly loss after volatile 2015

SHANGHAI, Dec 31 China's yuan weakened against
the dollar on Thursday and was set to wind up the year with a
record yearly loss of 4.7 percent after volatile trading in last
five months.
    A big question in global currency trade for 2016 is how much
further the yuan might depreciate. 
    "We believe yuan depreciation is likely to continue through
2016," said Craig Chan, FX strategist at Nomura.    
    Some traders forecast that it could slip as far as 6.80 to
the dollar  at the end of 2016, based on the slowing growth of
the world's second-largest economy and divergence in the value
of the yuan onshore and offshore.
    "We think China and the United States will continue their
monetary policies tones in 2016, which would boost the dollar
and exert downward pressure on the yuan," said a dealer at an
Asian bank in Shanghai. 
    Prior to Thursday's market opening, the People's Bank of
China (PBOC) set the midpoint rate at 6.4936 per
dollar, its weakest level since May 2011 and 0.1 percent weaker
than the previous fix of 6.4895. 
    The spot market opened at 6.4940 per dollar and
was changing hands at 6.4936 at midday, 0.05 percent weaker than
the previous close. 
    "The yuan moved barely today," said a dealer at a foreign
bank in Shanghai. "But it is still a volatile year."
    The Chinese currency will shed 1.5 percent just for December
if it closes at the midday level, and is sure to have the
biggest yearly loss since 1994, when China established its
foreign exchange market.
    The International Monetary Fund (IMF) announced on Nov. 30
that it decided to admit the yuan into its Special Drawing
Rights (SDR) basket, an important milestone for the Chinese
currency's integration into global finances. 
    After the announcement, the onshore yuan lost 1.35 percent
against the dollar in a 10-day consecutive depreciation, the
longest weakening streak on record. The PBOC permitted the
yuan's fall, making its currency to be more market-oriented and
internationalised.
    Intervention by state-owned banks on behalf of the PBOC has
eased since October, traders said, in contrast to August and
September.
    The PBOC abruptly devalued its yuan midpoint guidance rate
on Aug. 11 by nearly 2 percent, which it called a reform of
basing the midpoint on the previous day's closing price.
    But the subsequent expectations of steep depreciation forced
the central bank to take unprecedented steps to support the
yuan, along with rescuing measures to stabilise its stock
markets, partly hit by the yuan's weakness. 
    From January to July, before the landmark devaluation, the
yuan had stayed around 6.2 per dollar.  
  
    China has cut its interest rates for six times since
November 2014 in its latest easing cycle to boost its economic
growth, while the U.S. Federal Reserve hiked its interest rates
for the first time since 2006 in December, narrowing the
interest spreads of the two nations in favour of the greenback.
    On Thursday, the offshore yuan was trading 1.34
percent weaker than the onshore spot at 6.5820 per dollar. It
struck 6.6100 on Wednesday, its weakest level since September
2011, and is set for a 6 percent loss through 2015.
    "Beijing is trying to converge the yuan's offshore value
with the onshore market," said a trader at a foreign bank in
Shanghai. "I think the onshore yuan will go down and close up to
the offshore market in 2016."
    In further reforms, China's onshore yuan's trading hours in
2016 will last until 11:30 p.m. local time (1530 GMT), rather
than end at 4:30 p.m., a major reform step that should help
onshore and offshore rates converge.

    The yuan market at a glance: 
    
    ONSHORE:
 Item               Current  Previous  Change
 PBOC midpoint      6.4936   6.4895    -0.1%
                                       
 Spot yuan          6.4936   6.4902    -0.05%
                                       
 Divergence from    0.00%              
 midpoint*                             
 Spot change ytd                       -4.46%
 Spot change since 2005                27.46%
 revaluation                           
 
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2 percent from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.5820    -1.34%
        *                        
 Offshore              6.7855    -4.30%
 non-deliverable                 
 forwards                        
               **                
 
*Premium for offshore spot over onshore 
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.

Read more:
http://www.reuters.com/article/china-yuan-midday-idUSL3N14I1XQ20151231?rpc=401

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