Yuan below key 6.6 dollar level

PBC fix triggers strong depreciation outlook

China’s yuan weakened beyond the psychologically key 6.6 per dollar level for the first time in six months on Wednesday.

Reflecting the rising risks to the economic outlook, the People’s Bank of China (PBC), the country’s central bank, lowered its yuan midpoint for the sixth straight trading day to 6.5569 per dollar, 389 pips or 0.6 percent weaker than the previous fix of 6.5180.

It was the lowest fix since December 25, and the biggest one-day weakening in percentage terms since January 9, 2017, with some analysts suspecting the PBC prefers to let the currency depreciate modestly.

The spot yuan rate breached the 6.6 per dollar level in early trade, after opening at 6.5717 and then moving to a low of 6.6159 at one point, the softest since December 19, 2017.

The onshore spot was changing hands at 6.5909, 0.21 percent weaker than the previous late session close. Its offshore counterpart was on track for its tenth straight day of losses, changing hands at 6.5984.

Some dollar selling was seen helping the onshore spot yuan move back up to trade firmer than the 6.6 per dollar level at around midday, several traders said.

However, it wasn’t clear if State banks were propping up the yuan, they said.

Major State-owned Chinese banks were seen repeatedly selling dollars to support the yuan after a 2015 devaluation that roiled global markets. These dollar-selling interventions dried up last year.

The depreciation of the yuan is not a bad thing for the Chinese economy, Tan Yaling, the director of the China Foreign Exchange Investment Research Institute, wrote in an article published in the Economic View, a new media outlet under the China News Service, on Wednesday.

Standing around the 6.6 per dollar level can benefit the country’s trade and stabilize the market, she said. Tan expects that continued depreciation will likely be seen within this year, and the yuan may even inch closer to 7 per dollar.