The offshore yuan traded in Hong Kong fell the most in a month as the euro’s decline after Greek voters rejected further austerity measures boosted dollar demand.
Sixty-one percent of Greeks backed Prime Minister Alexis Tsipras’s call to say ‘No’ to further spending cuts and tax increases in a referendum, raising the risk of the nation’s exit from the currency union. A gauge of the U.S. dollar advanced 0.2 percent as the euro dropped to a one-week low. The People’s Bank of China would provide liquidity for margin trading, China’s securities regulator said on Sunday as officials intensified efforts to stop equity losses.
“The Greece rejection is a surprise and it spurred demand for the dollar, which now acts like a safe-haven investment,” said Aaron Chan, director of retail sales at ADS Securities Hong Kong Ltd. “The yuan will depreciate mildly as the PBOC adds cash to the market to stimulate the economy and stabilize the stock market.”
The offshore yuan that trades freely in Hong Kong fell 0.1 percent, the most since June 5, to 6.2123 a dollar as of 4:49 p.m. The onshore yuan, which is constrained by a daily central bank fixing, dropped 0.06 percent to close at 6.2092 in Shanghai, China Foreign Exchange Trade System prices show.
The PBOC set the yuan’s fixing 0.02 percent lower than Friday at 6.1172 a dollar, the weakest level since June 10. The gap between the spot rate in Shanghai and the fixing was 1.5 percent, within the 2 percent limit.
The PBOC will offer China Securities Finance Corp., which manages the nation’s short selling and margin trading, liquidity support, according to a statement on the China Securities Regulatory Commission website Sunday. Over the weekend, China also suspended initial public offerings and brokerages pledged to buy shares amid steps to stabilize the stock market.
If the central bank becomes the main source of market-supporting liquidity, its credibility will be hurt and the yuan may come under pressure, Bank of America Merrill Lynch strategists led by David Cui wrote in a note Monday.
— With assistance by Tian Chen