China’s yuan and its forward contracts dropped after the central bank weakened the reference rate for a third day to a level that meant depreciation was necessary to stay within the permitted trading band.
The People’s Bank of China set the fixing 0.06 percent weaker at 6.3082 per dollar today, 1.06 percent below last week’s closing level. The yuan’s value is kept within 1 percent of the reference rate. The currency extended its losing streak to the longest since August amid concern that Greece will struggle to secure a bailout and as U.S. voters prepare to choose a president. The Chinese Communist Party holds a congress starting Nov. 8 for its once-a-decade power handover.
“There are a lot of uncertainties ahead,” said Patrick Cheng, a Hong Kong-based foreign exchange analyst at Haitong International Securities Co. in Hong Kong. “Perhaps the PBOC wishes to hold the yuan stable for now given its recent rapid appreciation.”
The yuan fell 0.06 percent to close at 6.2454 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.2451 earlier, the strongest level it could reach within the trading band. The currency has declined 0.13 percent in three trading sessions through today, limiting this year’s advance to 0.78 percent.
European leaders’ determination to keep Greece in the euro area will be tested this week as Prime Minister Antonis Samaras struggles to win political support for measures needed to obtain aid.
In Hong Kong’s offshore market, the yuan was unchanged at 6.2418 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards declined 0.13 percent, the most since Oct. 18, to 6.3648 per dollar. The contracts, trading at 1.9 percent discount to the onshore spot rate, weakened 0.28 percent in three days.
One-month implied volatility for the onshore yuan, a measure of exchange-rate swings used to price options, was steady at 1.6 percent today.
Hong Kong Monetary Authority added HK$5.04 billion ($650 million) to the financial system on Nov. 2 to prevent the city’s currency from rising beyond its permitted trading range, according to data compiled by Bloomberg. That’s the largest single injection since Oct. 19, when HKMA intervened the market for the first time in three years, the data show. The central bank has injected a combined $4.2 billion so far.
The Hong Kong dollar was steady at HK$7.7502 against the greenback, near the top of its permitted trading range.