China’s yuan touched the lowest level in six weeks after the central bank cut the reference rate for a second day, raising speculation it wants to slow appreciation to protect exporters amid a slide in the yen.
The People’s Bank of China reduced the fixing by 0.03 percent to 6.2898 per dollar, the weakest level since Dec. 27. The yen has declined 7 percent in 2013 and approached a three-year low yesterday, threatening to make Japanese goods more competitive in international markets. At the same time, policy makers flagged the risk of inflation, saying China must be alert to changes in expectations for imported price gains, according to a quarterly report issued yesterday.
“China is unwilling to have a strong yuan as Japan is likely to further loosen monetary policy,” said Daniel Chan, executive vice-president at Glory Sky Global Markets Ltd. in Hong Kong. “Export growth is recovering but the momentum isn’t that strong.”
The yuan closed at 6.2322 per dollar in Shanghai, little changed from yesterday’s 6.2317, prices from the China Foreign Exchange Trade System show. The currency touched 6.2360 earlier, the lowest level since Dec. 27. The yuan is allowed to diverge a maximum 1 percent from the daily reference rate.
One-month implied volatility in the yuan, a measure of expected moves in the exchange rate used to price options, held at 1.25 percent, according to data compiled by Bloomberg.
The PBOC reiterated in its quarterly report that it will improve the yuan’s exchange-rate mechanism and strengthen the flexibility of two-way movements. The statistics bureau may report 2 percent inflation for January tomorrow, a number that may have been distorted by the timing of the Lunar New Year holiday, according to the median estimate in a Bloomberg News survey of analysts. In December, the figure was 2.5 percent.
Chinese markets will be closed all next week for the annual festivities. The holiday fell in the last full week of January in 2012.
In Hong Kong’s offshore market, the yuan slipped 0.08 percent to 6.2223 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards were little changed at 6.3205 per dollar, trading at a 1.4 percent discount to the onshore spot rate.
Investors should “stay long” the offshore yuan against the greenback on positive rate differentials, Credit Agricole CIB analysts Frances Cheung and Dariusz Kowalczyk wrote in a research report dated Feb. 6, referring to a position that favors buying the currency.