China fixes yuan at over 5-year low against dollar

Move in anticipation of higher US interest rates

SHANGHAI, May 30, (AFP): China’s central bank on Monday set the value of the yuan currency at a more than five-year low against the US dollar, according to the national foreign exchange market, in a pattern of weakness in anticipation of higher US interest rates.

The People’s Bank of China (PBoC) put the yuan — also known as the renminbi (RMB) — at 6.5784 to $1.0, down 0.45 percent from its fix on Friday, according to data from the China Foreign Exchange Trade System.

The level was the lowest level since February 2011.

China only allows the yuan to rise or fall two percent on either side of the daily fix, one of the ways it maintains control over the currency.

At 4:30 pm (0830 GMT) on Monday, the yuan stood at 6.5825 to $1.0, down 0.35 percent from Friday’s close.

“The yuan will depreciate gradually,” Song Yu, China economist for Goldman Sachs/Gao Hua Securities, told Bloomberg News. “The main driver for the decline would be a stronger dollar on the back of the expectation that the Fed will raise interest rates.”

US Federal Reserve Chair Janet Yellen last week implied that interest rates could be lifted soon.

Yellen, speaking at Harvard University on Friday, said a US rate hike “probably” would be justified “in the coming months” if economic data continued to strengthen.

China rattled global investors with a surprise devaluation last August, when it guided the normally stable yuan down nearly five percent over a week.

In a sign that people are less willing to hold the Chinese currency, the yuan fell to sixth place from fifth as a global payments currency in April, trailing the Canadian dollar, according to SWIFT, the global provider of financial messaging services.

China’s central bank on Friday denied a media report that it was retreating from allowing the yuan to trade in a more market-oriented way.

Reveal

The bank also dismissed another report that said financial authorities were pressing the United States to reveal the timing of a potential Fed rate hike, according to a statement on its microblog.

“The People’s Bank of China always adheres to market-oriented reform,” it said, adding the yuan would remain “basically stable”.

Meanwhile, the dollar extended its gains in Asia Monday on the back of comments from Federal Reserve boss Janet Yellen that bolstered speculation that a US rate hike was drawing closer.

America’s top central banker said Friday that activity in the powerhouse economy appeared set to accelerate and the labour market would continue to strengthen, and added that increase in interest rates would likely happen “in the coming months.”

“The message from the Fed remains that a rate hike is getting closer,” said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors.

On Monday, the dollar rose to 110.95 yen from 110.37 Friday in New York, while the euro weakened to $1.1103 from $1.1113.

The European single currency rose to 123.19 yen from 122.65 yen.

The greenback was also broadly higher against a basket of emerging market units including the Malaysian ringgit, Indonesian rupiah, Thai baht and Philippine peso.

The South Korean won dropped one percent against the dollar.

A US rate hike would tend to boost the greenback against other currencies as investors flock to dollar-denominated assets.

As a Fed rate move draws closer, China’s central bank on Monday set the value of its yuan currency at a more than fiveyear low against the dollar.

A Group of Seven summit in Japan wrapped up Friday, with members reaffirming previous commitments not to intervene in foreign exchange markets, after Tokyo faced a backlash from its rich nation counterparts over threats to weaken the surging yen.

“The G7 joint statement may ultimately be significant less for what it says about fiscal policy and structural reform than for its language on exchange rate policy,” Tobias Harris, a vice president at Teneo Intelligence, said in a commentary.