China’s central bank set the daily yuan-fixing at 6.7008 against the dollar
By GREGOR STUART HUNTER
The Wall Street Journal
October 9, 2016
The Chinese yuan was guided toward a six-year low against the U.S. dollar on Monday, as the country’s markets returned after a weeklong holiday.
In onshore trading, the currency was on track for its biggest one-day loss against the U.S. dollar since the U.K.’s vote to leave the European Union in June.
The yuan entered the basket of currencies backing the IMF’s special drawing rights, an international reserve currency, on Oct. 1.
The People’s Bank of China set its daily reference rate for the yuan at 6.7008 against the U.S. dollar, a depreciation of 0.3% from its last fixing of 6.6778 on Sept. 30, before the National Day holiday. Monday’s fixing was the weakest level for the currency since September 2010.
People’s Bank Of China. Bloomberg Photo
Onshore, where the yuan is allowed to trade within 2% of the PBOC’s central reference point, the currency traded 0.5% weaker at 6.7032 in early trade. Offshore, the yuan traded 0.1% weaker at 6.7106. Many markets in Asia, including the largest offshore-yuan trading center in Hong Kong, are closed for a holiday Monday.
The past week was characterized by volatility in foreign-exchange markets, including a flash crash in the British pound that saw it lose more than 6% shortly after 7 a.m. Hong Kong time Friday before recovering later in the trading day.
The U.S. dollar, which accounts for about a quarter of the value of the basket of currencies the yuan tracks, has strengthened during the period. The U.S. dollar index, which tracks its strength against a basket of six currencies, is up 1.1% so far this month.
The weakness in the yuan fix reflects data released during the past week, including a faster-than-expected drawdown of $18.79 billion in China’s foreign-currency reserves during September, said Alex Wijaya, senior sales trader at CMC Markets.
“For the past year, the Chinese government has been intervening in the currency and this has depleted some of its foreign-exchange reserves, and this could be one of the main contributions to the weakness in the yuan,” he said. “The U.S. dollar has been strengthening as well.”
However, he said Friday’s disappointing U.S. jobs report would cause the U.S. dollar to depreciate in the near-term, relieving pressure on the yuan.
The U.S. jobs report showed nonfarm payrolls rose by 156,000 during September, the smallest gain since May and below market expectations of a gain of 170,000.
“Given the dollar’s global strength and the yuan’s losses offshore while China was on holiday last week, the fixing today is largely in line with people’s expectations, at least based on our model,” said a Shanghai-based head of trading at a Chinese bank.
The bigger-than-expected fall in China’s foreign reserves in September also weighs on the yuan’s immediate outlook but whether Monday’s fixing signals Beijing’s increased willingness to let the yuan depreciate at a faster pace to help its economy remains to be seen, he said.
If the dollar keeps rising, it is likely that the yuan may gradually test lower levels such as 6.7200 to 6.7300, according to Liu Dongliang, senior analyst at China Merchants Bank.
“However, if the spot exchange rate becomes a one-way traffic, I believe the central bank will intervene in order to stabilize expectations,” Mr. Liu said, referring to a potential, more aggressive fall in the yuan.
—Shen Hong contributed to this article.
Write to Gregor Stuart Hunter at firstname.lastname@example.org
Corrections & Amplifications:
The U.S. dollar accounts for about a quarter of the value of the basket of currencies the yuan tracks. An earlier version of this article incorrectly stated the percentage. (Oct. 10)
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