The Chinese yuan plunged to a five-year low in offshore trading and the gap between it and its mainland counterpart widened sharply on Wednesday, reflecting growing expectations of further weakness in the currency amid an economic slowdown and a slump in stock markets.
The offshore yuan fell to 6.6915 against the greenback, the lowest rate of exchange since at least the last quarter of 2010 and a 2.1 percent discount to the onshore yuan's 6.5506 level. While the yuan is primarily traded on the mainland and subject to strict central bank supervision, its offshore counterpart is accessible to everyone.
"The spread between the onshore and offshore yuan has now reached some of the highest levels in the pair's history – a clear indication of both volatility and intervention," said Angus Nicholson, a market strategist at IG.
Markets generally expect the onshore yuan to continue depreciating against the dollar on the back of sluggish growth prospects, accelerating capital outflows and demand for overseas assets.
"The combination of weak cyclical and structural forces is seen working against the currency," HSBC analysts said in a research note. "In the near-term, there could be stronger dollar demand against the onshore yuan as the latter's depreciation expectations remain entrenched."