Yuan fix drops to six-year low

The Myanmar Times - - International Business -

CHINA’S cen­tral bank set the yuan’s cen­tral par­ity rate weaker than 6.7 to the dol­lar for the first time in six years yes­ter­day, the first day of trad­ing since it joined the IMF’s “spe­cial draw­ing rights” cur­rency bas­ket.

The cur­rency has been de­clin­ing for months in the face of a glob­ally stronger dol­lar, slow­ing growth in the Chi­nese econ­omy, and cap­i­tal out­flows from the world’s sec­ond-largest econ­omy.

China’s com­mu­nist au­thor­i­ties have re­peat­edly pledged to lib­er­alise trad­ing in the unit, also known as the ren­minbi, but still keep a tight rein on it, only al­low­ing it to rise or fall 2 per­cent on ei­ther side of a daily fix on the for­eign ex­change mar­ket.

Yes­ter­day, the Peo­ple’s Bank of China low­ered the rate by 230 ba­sis points from the pre­vi­ous trad­ing day to 6.7008, its weak­est since 2010.

Chi­nese mar­kets were closed all last week for na­tional holidays, dur­ing which the dol­lar’s per­for­mance was “quite strong”, Lu Zheng­wei, of the In­dus­trial Bank, told AFP.

“The slump is a re­sponse to the strong dol­lar dur­ing the hol­i­day.”

Yes­ter­day was the first trad­ing day in China since the yuan joined the dol­lar, pound, yen and euro in the IMF’s “spe­cial draw­ing rights” re­serve cur­rency bas­ket on Oc­to­ber 1, after a de­ci­sion last year.

The move, long pressed for by Bei­jing as it seeks to in­crease the yuan’s role in global mar­kets, brings with it sym­bolic pres­tige but has lim­ited di­rect im­pact, an­a­lysts say.

Zhang Qun, an an­a­lyst at Citic Se­cu­ri­ties, said the cur­rency’s value was in­creas­ingly de­pen­dent on China’s eco­nomic fun­da­men­tals, adding, “In the medium and long term, the yuan will con­tinue to de­pre­ci­ate at a steady, slow pace.”

The Asian gi­ant’s econ­omy ex­panded only 6.9 per­cent in 2015 – its weak­est rate in a quar­ter of a cen­tury – and has slowed fur­ther this year.

In Au­gust of last year, Bei­jing sud­denly de­val­ued the yuan, caus­ing in­vestors to dump the cur­rency in vol­umes not seen since 1994 and spark­ing an out­flow of cap­i­tal from China. The yuan has fallen 8pc against the US dol­lar over the past two years.

Strong US eco­nomic data re­leased in Septem­ber and height­ened mar­ket ex­pec­ta­tions that the US Fed will raise in­ter­est rates in De­cem­ber have also caused short-term pres­sure on the yuan, an­a­lysts said. –

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