By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) — China’s yuan departed from its upward trend Thursday and Friday after hitting a record high earlier in the week, though at least one analyst said the currency’s long-term prospects are strong.
On Wednesday, the yuan — also known as the renminbi or “people’s currency” — rose to record post-float high, as the dollar fell to 6.3772 yuan on mainland Chinese markets, according data from the state-run Xinhua News Agency.
However, plunges in global stock markets and for many commodities on Thursday sent the Chinese unit back down, with the central bank’s dollar “parity rate” — the midpoint of the government-set trading range for the domestic market — rising to 6.3808 yuan Thursday and 6.3840 yuan on Friday.
But in offshore trade in Hong Kong, the yuan’s fall was more significant. There, the dollar jumped to 6.56 yuan, creating a rare case in which the yuan in Hong Kong traded at a discount to that on the Chinese mainland, according to data reported by Reuters.
The yuan isn’t freely convertible outside of China. Some foreign investors seeking exposure to the currency trade in non-deliverable forwards (NDFs), which offer a hedge against yuan moves but without any physical yuan trading hands.
On that market, the one-year future traded at 6.42 yuan midday Friday, off an earlier higher of 6.47 yuan but above the mainland spot rate, implying that the market believe the yuan will fall further, according to price quotes reported by Dow Jones Newswires.
Still, some analysts saw the longer-term picture for the yuan as strong.
“I think this is the new safe haven,” said Credit Agricole senior economist Dariusz Kowalczyk in Hong Kong.
Kowalczyk cited the strength of the Chinese economy relative to that of the West.
“If you still have cash, then I would definitely keep it in assets of very low risk,” he said. “Here in Hong Kong, find a bank that allows you to open a bank account in [mainland] China and get the Chinese interest rates.”
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
