The yuan traded in Hong Kong fell the most in two weeks as China’s central bank added cash to the onshore banking system, boosting supply of the currency.
The People’s Bank of China injected funds through reverse-repurchase contracts for the first time in two months, according to two traders who participated in an auction Thursday. Domestic money-market rates have risen as sales of new shares and municipal bonds boosted demand for funds. Chinese Vice Premier Wang Yang said Wednesday the U.S. pledged to respect International Monetary Fund procedures on China’s efforts to win reserve-currency status for the yuan, as an annual summit ended.
“The injections increase the supply of yuan in the domestic market and could have some spill-over effect to offshore rates,” said Daniel Chan, a Hong Kong-based analyst at Brilliant & Bright Investment Consultancy Ltd. “There’s concern that after the conclusion of the Sino-U.S. talks, China won’t need to keep the yuan at strong levels in the near term.”
The offshore yuan fell 0.06 percent to 6.2076 a dollar as of 4:36 p.m. in Hong Kong, the biggest decline since June 12, according to data compiled by Bloomberg. In Shanghai, the currency dropped 0.04 percent to close at 6.2094, China Foreign Exchange Trade System prices showed. The PBOC cut its daily reference rate by 0.01 percent to 6.1148. The gap between the onshore spot rate and the fixing was 1.55 percent, within the 2 percent limit.
The yuan retained its fifth ranking for global payments in May, with a market share of 2.18 percent, Society for Worldwide Interbank Financial Telecommunications said in a statement Thursday.
Vice Finance Minister Zhu Guangyao said at a press briefing on Wednesday that China has made considerable progress on its currency system, and reforms are still moving forward. The yuan is at a reasonable, balanced level, he said. U.S. Treasury Secretary Jacob J. Lew said the real test will be what Chinese authorities do when there’s pressure on the exchange rate to strengthen.