Yuan in Hong Kong Has Longest Losing Streak Since September 2010

The yuan dropped for a seventh day in Hong Kong, its longest losing streak since September 2010, after a central bank official said the exchange rate “will be more market-oriented.”

The offshore currency traded at a discount to the Shanghai rate today, the first time since Nov. 26. The yuan “is pretty much close to the equilibrium level,” People’s Bank of China Deputy Governor Yi Gang said in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland on Jan. 26. The PBOC cut the currency’s reference rate by 0.02 percent to 6.2818 per dollar, the weakest level since Jan. 7, as the yen reached its lowest in 2 1/2 years versus the greenback.

“It’s not a new comment but as you get closer to equilibrium, the appreciation pace will slow down,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “The yen weakness has been bidding up the dollar,” which led to weaker currencies across Asia, he said.

The Chinese currency declined 0.18 percent to 6.2248 per dollar as of 4:38 p.m. in Hong Kong, according to data compiled by Bloomberg, losing 0.6 percent in seven days. The currency traded at a 0.04 percent discount to the onshore rate.

In Shanghai, the yuan slipped 0.03 percent to close at 6.2226 per dollar and touched 6.2241, the lowest since Jan. 10, prices from the China Foreign Exchange Trade show. The currency is allowed to trade as much as 1 percent on either side of the central bank’s daily fixing.

Forwards, Volatility

Twelve-month non-deliverable yuan forwards dropped 0.3 percent to 6.3160, a 1.5 percent discount to the onshore spot rate, data compiled by Bloomberg show. One-month implied volatility in the Chinese currency, a measure of expected moves in the exchange rate used to price options, increased 10 basis points, or 0.10 percentage point, to 1.3 percent.

South Korea’s central bank said it used a bilateral currency swap with China for the first time. Bank of Korea made yuan loans to 12 local banks on Jan. 25 totaling 62 million yuan ($10 million), according to an e-mailed statement yesterday. Yuan lending will be used for bilateral trade settlement, it said.

Yuan deposits in Hong Kong climbed by 5.6 percent, or 32 billion yuan, from a month ago to 603 billion yuan in December, according to the Hong Kong Monetary Authority today. That’s the biggest increase since August 2011. HSBC Holdings Plc., Industrial Commercial Bank of China (Asia) Ltd. and 13 other lenders will provide about 2 billion yuan of cross-border loans to companies in the Qianhai district of Shenzhen.

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