Yuan Forwards Drop as PBOC Sets Fixing at 9-Month Low on Outflow

Yuan forwards declined the most in five weeks as the central bank set the currency’s daily fixing at a nine-month low after a report suggested capital flowed out of the country last month.

The People’s Bank of China lowered the yuan’s reference rate by 0.06 percent to 6.3482 per dollar today, the weakest level since Nov. 30. Yuan positions at Chinese lenders accumulated from sales of foreign exchange to the central bank fell 3.8 billion yuan ($597 million) to 25.658 trillion yuan at the end of July from a month earlier, the PBOC said on its website yesterday.

“The yuan will continue to suffer from the cautious atmosphere,” said Patrick Cheng, a Hong Kong-based foreign- exchange analyst at Haitong International Securities Co. “Investors are watching what China will do to revive growth. It’ll take a while for those funds that have left to return.”

Twelve-month non-deliverable forwards dropped 0.2 percent, the most since July 9, to 6.4383 per dollar as of 4:31 p.m. in Hong Kong, data compiled by Bloomberg showed. The contracts traded at a 1.2 percent discount to the onshore rate.

The yuan fell 0.06 percent to close at 6.3625 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That was the biggest drop since Aug. 3. The currency is allowed to trade as much as 1 percent on either side of the central bank’s daily fixing.

In Hong Kong’s offshore market, the yuan slipped 0.05 percent to 6.3680. One-month implied volatility, a measure of exchange-rate swings used to price options, was steady at 1.25 percent.

China has left the reserve ratio for the biggest banks at 20 percent since mid-May while lowering interest rates in June and July, bucking forecasts from HSBC Holdings Plc and Societe Generale SA that the government would build on three ratio reductions since November.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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