The yuan was little changed on concern a stalling recovery in the U.S. economy, China’s second-biggest overseas market, will prompt the central bank to slow appreciation to protect exports.
The People’s Bank of China set the currency’s reference rate at 6.8007 per dollar, the weakest level in more than a week, after a U.S. government report yesterday showed sales of existing houses had a record plunge in July. The yuan has weakened 0.3 percent this month after having gained 0.8 percent since a two-year dollar peg was dropped on June 19. Local bonds rose.
“The slowdown in foreign economies increases uncertainties in China’s export recovery,” said Liu Dongliang, a Shenzhen-based analyst at China Merchants Bank Co., the country’s sixth-largest lender by market value. He estimated the yuan will rise as much as 2 percent against the dollar by the end of this year.
The yuan traded at 6.7986 per dollar as of 5:30 p.m. in Shanghai, from 6.7972 yesterday, according to the China Foreign Exchange Trade System. Twelve-month non-deliverable forwards were little changed at 6.6878, reflecting bets the currency will advance 1.7 percent, according to data compiled by Bloomberg.
The National Association of Realtors reported yesterday that sales of existing U.S. homes dropped 27 percent in July after a revised 7.1 percent reduction in the previous month. The median forecast of 74 economists in a Bloomberg News survey was for a 13.4 percent drop.
Chinese government bonds due in five years and more rose after the finance ministry sold five-year debt at a yield lower than what analysts had forecast.
The ministry sold 28.22 billion yuan ($4.2 billion) of five-year bonds at an average rate of 2.58 percent, one basis point less than the median estimate in a Bloomberg News survey. The highest winning bid was 2.61 percent, compared with the top yield forecast of 2.63 percent.
“The gap between the average and highest winning yield was very narrow, showing most investors tended to bid at relatively low levels,” said Du Gang, a bond trader at Shenzhen Development Bank Co. “Bond yields followed the new debt sale down.”
The yield on the 2.76 percent note due in July 2017 slid five basis points to 2.84 percent, and the price of the security added 0.3 per 100 yuan face amount to 99.53, according to the National International Funding Center.