Chinese currency weakens as offshore yuan borrowing costs drop

SHANGHAI, Dec 21 (Reuters) –The yuan eased on Thursday, as offshore yuan funding costs fell and China’s blue-chip stock index hovered near 5-year lows.

With offshore liquidity easing, the cost of borrowing yuan in Hong Kong has fallen across the board, making it less expensive for some investors to short the yuan.

Hong Kong’s offshore yuan overnight CNH HIBOR HICNHONDF=, a gauge that measures offshore yuan liquidity conditions, fell 131 basis points to 2.00682%, the lowest in three weeks.

Meanwhile, sluggish stock performance in China has also hurt sentiment on the yuan, traders and analysts say. The blue-chip CSI300 index .CSI300 is still hovering near a 5-year low.

Prior to the market’s opening, the People’s Bank of China set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1012 per U.S. dollar, 46 pips weaker than the previous fix 7.0966.

The spot yuan CNY=CFXS opened at 7.1380 per dollar and was changing hands at 7.1465 at midday, 83 pips weaker than the previous late session close.

Looking ahead, the change in both U.S. and China monetary policy direction will become more supportive to the yuan, Ken Cheung, chief Asian FX strategist at Mizuho Bank said in a note.

The PBOC will likely continue to prioritise FX market stability to anchor confidence in China’s economy and contain capital outflow pressure, Cheung said, adding that he expects the onshore yuan to gradually stabilise around 6.95 by end-2024.

The global dollar index .DXY fell to 102.333 from the previous close of 102.408.

The offshore yuan CNH=D3 was trading 12 pips weaker than the onshore spot at 7.1477 per dollar.

The yuan market at 0333 GMT:

ONSHORE SPOT:

Item	Current	Previous	Change
PBOC midpoint CNY=SAEC	7.1012	7.0966	-0.06%
Spot yuan CNY=CFXS	7.1465	7.1382	-0.12%
Divergence from midpoint*	0.64%
Spot change YTD			-3.45%
Spot change since 2005 revaluation			15.81%

Key indexes:

Item	Current	Previous	Change
Thomson Reuters/HKEX CNH index			0.0
Dollar index	102.333	102.408	-0.1

*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% from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET