China’s yuan hits 16-month low

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Yuan Reuters. One-hundred Yuan notes are seen in this picture illustration.

Shanghai - China's yuan currency extended its downtrend against the dollar Wednesday to hit a 16-month low, despite the country's central bank fixing its trading point for the unit at a higher level.

The unit fell to as low as 6.2458 to the dollar in the morning, its weakest level since December 2012.

That compared with Tuesday's close of 6.2370, according to the China Foreign Exchange Trade System.

However, the People's Bank of China had set the mid-point for trading at 6.1599, compared with 6.1610 on Tuesday.

The PBoC keeps a grip on the currency but allows it to move up or down two percent on either side of a daily-set point.

The yuan has fallen repeatedly in recent months, with many dealers believing the depreciation is a deliberate move by the central bank to target speculative funds betting on continued rises.

But traders have also blamed the slowing economy as a crucial factor.

However, a Shanghai-based local bank trader told Dow Jones Newswires: “This round of yuan falls are mainly driven by investors spontaneously purchasing dollars instead of the central bank's intervention, so we may see it slowly weakening towards 6.26 in the coming weeks.”

Policymakers have pledged to move gradually towards full convertibility of the yuan, allowing it to be freely bought and sold, and bringing with it the uncontrolled movement of funds in and out of China.

The unit, which is also known as the renminbi, has fallen more than three percent so far this year, erasing gains of the amount in 2013.

“The depreciation... since mid-February has to some extent defied market expectations for one-way appreciation, so now expectations towards the renminbi are divided,” said Jiang Shu, a foreign exchange analyst with Industrial Bank.

“Expectations towards the domestic economy will certainly affect renminbi prices, but the impact should not be overestimated,” he said.

China's economy grew 7.4 percent year on year in the first three months of 2014, down from 7.7 percent the previous quarter, with authorities blaming a slow global recovery and domestic structural reforms.

The US Treasury said earlier this month that the recent fall in the yuan could “raise particularly serious concerns” if it represents a reversal in China's pledge to move towards a more free-floating yuan.

However, it stopped short of branding China a currency “manipulator” in a twice-yearly report to the US Congress.

A weaker yuan makes Chinese exports cheaper overseas, at a time when Beijing is seeking ways to boost growth. - Sapa-AFP



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