THE offshore yuan outpaced declines in the Shanghai rate last week, adding to signs of renewed stress on the Chinese currency as investors brace for higher borrowing costs in the United States.

    The exchange rate in Hong Kong’s overseas market has fallen 0.8 percent last week, the most since mid-November, while the onshore rate is down 0.15 percent. The moves come before an expected Federal Reserve interest rate increase this week, which would boost the U.S. dollar and lower money flows to emerging markets.

    The yuan’s accelerated declines follows data showing China’s foreign exchange reserves shrank to the smallest in more than five years amid speculation policymakers defended the currency.

    Authorities have rushed to ease the pressure by taking steps to restrict money from leaving the country. Another risk is a renewal of Chinese citizens’ annual currency conversion quotas next month, which may spur a rush to the dollar.

    “The offshore yuan is being moved by external markets, in line with other emerging market currencies, to reflect the outlook amid an almost certain Fed interest rate hike,” said Banny Lam, head of research at CEB International Investment Ltd.

    “The onshore yuan is finding some support on speculation authorities will tighten their grip on capital outflows. There have been a lot of reports about how the government is stepping up scrutiny of outbound capital flows, and this will probably continue.” (SD-Agencies)