Yuan slides after China weakens fix
HONG KONG: A slump in the yuan deepened after the central bank weakened its daily reference rate for the currency by the most in two years.
The People’s Bank of China (PBoC) weakened the fixing by 0.9% to 6.7671 per US dollar.
While the rate was in line with the average forecast of traders and analysts in a Bloomberg survey, the yuan turned sharply lower after the move, sinking as much as 0.7% to 6.8367 per dollar in offshore trading.
The currency pared losses in both onshore and overseas markets, after a big Chinese bank was seen selling the greenback.
Bets for further monetary easing and speculation the authorities are sanctioning the losses by not intervening have helped make the yuan the worst performer among more than 30 major currencies in the past month.
The rapid descent has undermined confidence in other emerging market peers and helped fuel a plunge in commodity prices.
“The PBoC will only let the yuan devalue in an orderly fashion at best instead of letting it depreciate freely in order to avoid to risk of capital flight,” said Ngan Kim Man, co-head of treasury at China Everbright Bank Co’s Hong Kong branch.
“I won’t expect the yuan to fall below 6.9 without any kind of intervention.”
At least one big bank offered the dollar when the onshore yuan reached 6.81 per greenback, said the traders, who asked not to be named as they are not authorised to talk to the media.
The lender stopped selling after the Chinese currency trimmed losses to trade near 6.79, they said, adding that the move spurred profit-taking among other banks, magnifying the impact.
The yuan slid 0.19% to 6.7927 in onshore trading, taking its loss from its March high to more than 8%. The benchmark Shanghai stock gauge dropped 0.1% in a sixth day of losses, while the yield on 10-year government debt was little changed at 3.44%, close to the lowest since April 2017.
The currency is in an even stronger spotlight now, as the trade dispute between the world’s two largest economies escalates. US President Donald Trump told CNBC that the currency is “dropping like a rock,” putting America at a disadvantage.
Expectations that the PBoC would loosen its monetary policy to shore up a slowing economy are also weighing on the yuan.
The nation would keep liquidity ample and maintain growth in credit supply, Ruan Jianhong, the director of the central bank’s statistics department, wrote in the central bankbacked newspaper Financial News.
“The fixing reflects the PBoC’s higher tolerance for yuan weakness,” said Ken Cheung, senior Asian foreign-exchange strategist at Mizuho Bank Ltd in Hong Kong.
“Such rapid and sharp depreciation could trigger capital outflows pressures and undermine financial stability. China may issue verbal support soon.”