China weakens yuan again
CHINA weakened the yuan’s reference rate against the dollar for the sixth-straight trading day yesterday, the longest sequence in nine months, after expectations of a Fed interest rate hike put upward pressure on the US currency.
A series of positive readings on the US economy, and increasingly upbeat statements from Federal Reserve boss Janet Yellen, have fanned speculation the central bank will lift borrowing costs by the end of the year. This has sent the dollar rallying against most of its peers, including the yuan, which is also known as the renminbi.
China’s leadership has repeatedly pledged to liberalise trading in the currency but still keeps a tight rein on it, only allowing it to rise or fall 2 percent on either side of a daily fix in national foreign exchange markets.
Yesterday, the People’s Bank of China (PBoC) set the unit’s central rate against the greenback at 6.7258, a new six-year low after it passed the 6.7 mark on October 10.
It was the longest sequence of consecutive reductions since January, according to Bloomberg News, when world markets were roiled by concerns over the state of the Chinese economy and Beijing’s ability to deal with the crisis.
Analysts expect the currency to fall further in the face of dollar strength, slowing growth in the Asian giant, and capital outflows.
Michael Every, head of Asia-Pacific financial markets research at Rabo Bank, told AFP, “We have smashed through what I had dubbed as ‘the line-in-the-sand du jour’ of 6.7 and where we stop, no one knows.
“Clearly, the PBoC don’t want to see a sharp sell-off; but they also no longer seem to mind a slow(ish) one. Perhaps the next psychological target is 6.75,” he wrote in an email, saying it was a “roundish number”.
“After that we must surely be looking at the 6.83 level that the currency was pegged to [the dollar] from 2008 all the way to mid-2010,” he added.
“Clearly, there is a lot of atoning to do for all that previous pegging.”
The world’s second-largest economy expanded 6.9pc in 2015 – its weakest rate in a quarter of a century – and has slowed further this year.
In August last year, Beijing suddenly devalued the yuan by nearly 5pc over a week, causing investors to dump the currency in volumes not seen since 1994.
That is unlikely to happen again under the 2pc control margin. –