Yuan Poised for Weekly Decline After China-U.S. Meeting Ends

China’s yuan was set for a weekly decline as the central bank weakened its reference rate for the first time in four days after a meeting with U.S. officials and amid concern the currency’s appreciation is hurting exports.

The People’s Bank of China lowered the daily fixing by 0.05 percent to 6.1631 per dollar today, after raising it to a three-week high of 6.1599 yesterday. U.S. Treasury Secretary Jacob J. Lew called for a more flexible currency during the two-day U.S.- China Strategic and Economic Dialogue that ended yesterday in Washington. China’s exports unexpectedly dropped 3.1 percent in June from a year ago, official data showed this week.

“Given weak export numbers, and with the meeting now out of the way, we expect the PBOC to revert toward lower fixes to ease some pressure on exporters,” said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore.

The yuan fell 0.05 percent to 6.1380 per dollar at 9:52 a.m. in Shanghai, taking this week’s loss to 0.08 percent, according to the China Foreign Exchange Trade System. The currency is allowed to trade a maximum 1 percent either side of the fixing. Twelve-month non-deliverable forwards declined 0.07 percent to 6.2855, a 2.3 percent discount to the spot rate.

Rising costs stemming from the yuan’s appreciation and higher labor expenses are “important factors” that make trade environment more serious, China News Service reported yesterday, citing Commerce Ministry spokesman Yao Jian.

Yuan Forecasts

China may allow the yuan to weaken in the second half to support overseas sales, according to UBS AG and Citigroup Inc. The yuan is the sole gainer this year among Asia’s 11 most-traded currencies, making it harder for Chinese exporters to compete. Westpac Banking Corp., which had the most-accurate estimates for the yuan over the last four quarters according to data compiled by Bloomberg, also expects the currency to decline in the remainder of 2013.

In Hong Kong’s offshore market, the yuan traded at 6.1387 per dollar from 6.1371 yesterday, data compiled by Bloomberg show. One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, fell one basis point, or 0.01 percentage point, to 1.68 percent.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

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

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