Yuan Posts Longest Monthly Slide Since 2007 on Growth Concern

China’s yuan dropped for a fourth month in its longest losing streak in at least seven years, on concern a slowdown in Asia’s largest economy has deepened and as the central bank lowered the currency’s daily fixing.

Data this month showed China’s economy expanded 7.4 percent in the first three months of the year, the weakest pace in six quarters, while a preliminary private report showed manufacturing shrank for a fourth month. The People’s Bank of China cut the yuan’s reference rate by 0.1 percent in April and the currency is Asia’s worst performer in 2014. The monetary authority sees the spot rate’s discount to the fixing as evidence of the yuan’s two-way risk, according to ING Groep NV.

“The yuan’s decline isn’t over, and the economy isn’t going to improve much in the short term,” said Bruce Yam, a Hong Kong-based currency strategist at Sun Hung Kai Forex. “The PBOC is comfortable with the yuan’s current levels and even a further decline.”

The yuan depreciated 0.66 percent this month and 0.02 percent today to 6.2593 per dollar, China Foreign Exchange Trading System prices show. It has slumped 3.3 percent in four months, the longest run of losses in CFETS records dating back to 2007. Local financial markets will be closed May 1 and 2 for holidays.

The currency earlier reached 6.2676, the weakest since Oct. 16, 2012, as the PBOC lowered the fixing for the first time in six days to 6.1580. The yuan traded at a 1.65 percent discount to the daily fixing, within the 2 percent maximum limit set by Chinese authorities. The currency may weaken to 6.4 this year, according to Yam.

Offshore Market

Twelve-month non-deliverable forwards slid 0.4 percent this month and 0.18 percent today to 6.2610 per dollar, 0.03 percent stronger than the Shanghai spot rate, data compiled by Bloomberg show. The offshore yuan weakened 0.77 percent in April and 0.09 percent today to 6.2637 in Hong Kong.

One-month implied volatility in the onshore yuan, a gauge of expected exchange-rate swings used to price options, fell one basis point, or 0.01 percentage point, this month to 2.10 percent and was unchanged today, according to data compiled by Bloomberg.

To contact the reporter on this story: Justina Lee in Taipei at jlee1489@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net Simon Harvey

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