China's yuan fell on Thursday in the offshore market in Hong Kong, with speculation about a near-term US rate rise pushing up the dollar and offsetting a strong rally in Hong Kong stocks, which should increase demand for the yuan, traders said.
The greenback hovered around a one-week high in early Asian trade after two influential Federal Reserve officials kept alive expectations of a relatively early US rate rise.
Falling for the third straight session, the offshore yuan dropped to its weakest level since March 30, changing hands at 6.2102 per dollar by midday, down 0.06 per cent from Wednesday's close.
Hong Kong stocks jumped as much as 6 per cent on Thursday morning, posting solid gains for the second day as mainland Chinese investors snapped up shares under the Shanghai-Hong Kong Stock Connect scheme.
"The stock rally has limited impact on the offshore yuan for now," said a senior currency trader at an Asian bank in Shanghai.
"In the longer term, however, as more capital flows into Hong Kong, the offshore yuan will be under appreciation pressure." That was echoed by other market players.
"The recent rally of China and Hong Kong stock markets is positive to the yuan FX rate and has helped the yuan walk away from the weakness seen in the first quarter," said Will Leung, head of investment strategy for greater China at Standard Chartered in Hong Kong.
"We haven't seen any impact on the offshore yuan pool and it's difficult to predict at this moment. The demand for yuan assets is in general stronger."
A slightly stronger yuan will also be in line with Beijing's intention to promote the internationalisation of the Chinese currency, including its aim to join the International Monetary Fund's Special Drawing Rights (SDRs) this year, analysts said.
They forecast that the offshore yuan was likely to move in a range between 6.19-6.22 per dollar in the short term.
In the onshore market, spot yuan was flat at 6.2035 against the dollar at midday.
The People's Bank of China set its official midpoint rate at 6.1338 per dollar prior to the market opening, little changed from the previous fix at 6.1345.