Yuan slips to weakest in 4 months, breaches key level

China’s yuan stumbled to its weakest in more than four months on Tuesday, falling past a psychologically important level after the central bank’s softer fixing and broad dollar strength.

“The authorities are sending a message that they are comfortable with the current trading range, albeit the spot rate breached the 6.4 per dollar level,” said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong.

Cheung believes that the Chinese authorities are “happy to see the yuan turn weaker” as the currency has strengthened against its trade-weighted basket, which raises concerns about the country’s export competitiveness.

Prior to market opening, the People’s Bank of China, the country’s central bank, lowered its official yuan midpoint to 6.4021 per dollar, 59 pips or 0.1 percent weaker than the previous fix of 6.3962. Tuesday’s official fixing was the weakest since January 22.

In the spot market, the onshore yuan opened at 6.4050 per dollar, and fell to a low of 6.4143 per dollar at one point in afternoon trade.

Some analysts also pointed to domestic factors contributing to the yuan’s weakness.

Weaker-than-expected investment and retail sales in April, persistently weaker central bank yuan guidance and a recent spate of corporate bond defaults all suggest further downside for the Chinese currency.

Some market participants noted that the offshore spot rate had fallen below the key level ahead of onshore trade, and led its onshore counterpart lower on Tuesday morning.