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Yuan Declines to 2013 Low After PBOC Cuts Fixing on Yen Weakness

Feb. 4 (Bloomberg) -- China’s yuan declined to its lowest level this year after the central bank cut the currency’s reference rate, prompting speculation authorities are protecting the nation’s exports against a weak yen.

The People’s Bank of China lowered the yuan’s fixing by 0.07 percent to 6.2860 per dollar today, the weakest level since Jan. 7. The currency is allowed to diverge a maximum 1 percent from the daily fixing. Japan’s yen has weakened 7.2 percent against the dollar this year, the worst performance among the 11 most-traded Asian currencies tracked by Bloomberg.

“China is trying to preserve its export competitiveness as the yen has dropped so much, even though Chinese officials won’t allow a rapid yuan depreciation,” said Patrick Cheng, foreign-exchange analyst at Haitong International Securities Co. in Hong Kong.

The yuan fell 0.09 percent to close at 6.2328 per dollar in Shanghai, prices from the China Foreign Exchange Trade System show. It touched 6.2342 per dollar, the weakest level since Dec. 28. One-month implied volatility in the Chinese currency, a measure of expected moves in the exchange rate used to price options, dropped three basis points, or 0.03 percentage point, to 1.35 percent, data compiled by Bloomberg show.

China’s non-manufacturing Purchasing Managers’ Index rose to 56.2 in January from 56.1 in December, according to official data yesterday. A reading above 50 indicates expansion. U.S. payrolls expanded in January and revisions to previous months’ showed even bigger gains, data showed last week.

In Hong Kong’s offshore market, the yuan dropped 0.04 percent to 6.2150 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable yuan forwards slid 0.07 percent to 6.3225, and traded at 1.4 percent discount to the onshore exchange rate, the data show.

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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