China's yuan breaks four-day rally as PBOC seen limiting advance
The yuan broke a four-day rally to drop the most in a week on concern China's central bank will not allow excessive gains in the currency.
The onshore exchange rate surged to the year's highest level on Thursday, while the offshore yuan recorded its strongest quarter since 2011 as a dollar gauge fell the most since the three months through September 2010. The greenback's 14-day relative-strength index against the offshore yuan neared a level on Thursday that indicates to some traders that the US currency will strengthen.
"The speed and scale of the yuan's advance in the past weeks was very significant, and that's not something China's central bank would like to see because it would hurt exports and pressure economic growth," said Kenix Lai, a foreignexchange analyst at Bank of East Asia Ltd. in Hong Kong.
The yuan dropped 0.22 percent to 6.4630 a dollar as of 5:40 p.m. in Shanghai, halting a four-day advance of 1 percent, according to China Foreign Exchange Trade System prices. The offshore currency fell 0.13 percent to 6.4721 in Hong Kong. The People's Bank of China raised its daily reference rate, which restricts onshore moves to 2 percent on either side, by 0.04 percent to 6.4585 on Friday.
The PBOC revealed its short foreigncurrency positions in forwards and futures for the first time this week, providing more clarity on its efforts to shore up the yuan with derivatives. The monetary authority held $28.9 billion of such positions with commercial lenders as of the end of February, which mainly reflects the currency hedging demand from domestic companies, according to a statement posted on its website.
Standard & Poor's lowered the outlook for China's credit rating to negative from stable on Thursday, saying the nation's economic rebalancing is likely to proceed more slowly than the grader had expected. The move came after Moody's Investors Service cut the nation's outlook earlier this month. Data released Friday showed China's official manufacturing purchasing managers' index expanded for the first time since July last year.
A Bloomberg replica of the CFETS RMB Index, which was unveiled in December and tracks the yuan against 13 exchange rates, fell to 97.98 on Friday, after dropping to a 16-month low of 97.97 on Wednesday. Markets in China and Hong Kong will be closed Monday for a holiday. "The yuan has strengthened quite significantly in the past weeks due to the dollar's weakness," said Tommy Xie, a Singapore-based economist at OverseaChinese Banking Corp. "It made some adjustments today. But if the dollar remains weak, the Chinese currency could rise to 6.42 or 6.41 versus the greenback in the near term." The central bank auctioned 140 billion yuan ($21.7 billion) of seven-day reverse-repurchase agreements on Friday, resulting in a net injection of 15 billion yuan for the week.