Yuan set for big­gest monthly loss

The Pak Banker - - MARKETS/SPORTS -

The yuan fell, head­ing for the steep­est monthly de­cline since the Au­gust de­val­u­a­tion, af­ter the Fed­eral Re­serve chief said an in­ter­est-rate in­crease could come in the next few months.

The on­shore yuan de­clined 0.24 per­cent to a three-month low of 6.5806 at 10:47 a.m., ex­tend­ing losses this month to 1.57 per­cent. The Peo­ple's Bank of China cut the fix­ing by 0.45 per­cent to 6.5784 per dol­lar, the weak­est level since Fe­bru­ary 2011, af­ter the green­back strength­ened. The U.S. cur­rency is poised for the big­gest monthly gain since Septem­ber 2014 as Fed Chair Janet Yellen said on Fri­day higher in­ter­est rates in the com­ing months look "ap­pro­pri­ate."

"The dol­lar was fur­ther un­der­pinned by Yellen's comments about an 'ap­pro­pri­ate' rate hike in the com­ing months last Fri­day, which led to more pres­sures for RMB to weaken against the dol­lar," said Tommy Xie, a Sin­ga­pore­based econ­o­mist at OverseaChi­nese Bank­ing Corp.

While the yuan slumped amid con­cern higher U.S. in­ter­est rates will spur out­flows of the Chi­nese cur­rency, the fix­ing is be­com­ing more pre­dictable as it ap­pears the PBOC is al­low­ing mar­ket forces to play a big­ger role in set­ting the daily rate, ac­cord­ing to OCBC. The cen­tral bank said in its quar­terly mon­e­tary pol­icy re­port that the fix­ing is de­cided both by the clos­ing price and the per­for­mance of a bas­ket of cur­ren­cies.

"The fact that we are able to fore­cast the daily fix­ing more ac­cu­rately shows that the yuan has been more pre­dictable than un­pre­dictable as the PBOC has been fol­low­ing its re­vised fix­ing mech­a­nism closely in the past few weeks," Xie said. The yuan trad­ing in Hong Kong fell 0.16 per­cent to 6.5868 per dol­lar, its low­est level since Feb. 3 and ex­tend­ing four weeks of losses in a row. The spread be­tween the on­shore and off­shore rates, a gauge of de­pre­ci­a­tion pres­sure, nar­rowed to 0.0075, or 75 pips, af­ter touch­ing the widest level in three months on May 18. A Bloomberg replica of the CFETS RMB In­dex rose 0.09 per­cent to 97.30 on Mon­day, af­ter snap­ping a two-week gain last week. China should qui­etly al­low wider moves in the yuan against a bas­ket of cur­ren­cies, a strat­egy that will re­duce the cost of lim­it­ing de­clines, ac­cord­ing to Yu Yongding, a for­mer PBOC ad­viser.

"The cur­rency bas­ket should be al­lowed to fluc­tu­ate within a big band, at least 20 per­cent," Yu said in Sin­ga­pore on Fri­day. The yield spread be­tween one-year China sov­er­eign notes and U.S. Trea­suries nar­rowed to 163 ba­sis points, the least in more than seven weeks, data shows.

The State Ad­min­is­tra­tion of For­eign Ex­change is­sued de­tailed rules on for­eign in­sti­tu­tions' ac­cess to the in­ter­bank bond mar­ket, say­ing there's no limit for com­pa­nies and no pre-ap­proval checks needed to move funds in and out of China, ac­cord­ing to a state­ment posted on its web­site Fri­day night. The reg­u­la­tion fol­lowed the cen­tral bank's Fe­bru­ary state­ment that longterm in­vestors from se­cu­ri­ties firms to as­set man­agers no longer need to ap­ply for quo­tas before they trade on the in­ter­bank bond mar­ket.

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