Yuan Completes Biggest Weekly Drop in 5 Months as U.S. Talks End

July 12 (Bloomberg) -- China’s yuan had its biggest weekly decline in five months as its reference rate was weakened 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, 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. in Singapore.

The yuan fell 0.04 percent to 6.1375 per dollar in Shanghai, taking this week’s loss to 0.08 percent, according to the China Foreign Exchange Trade System. That was the biggest weekly decline since February. The currency is allowed to trade a maximum 1 percent either side of the fixing. Twelve-month non-deliverable forwards declined 0.10 percent to 6.2877, a 2.4 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.

Finance Minister Lou Jiwei signaled the world’s second-biggest economy may expand less than the government’s target this year and that growth as low as 6.5 percent may be tolerable.

The government will expand its Renminbi Qualified Foreign Institutional Investor program trials to Singapore and London, China Securities Journal reported on its website today.

In Hong Kong’s offshore market, the yuan traded at 6.1414 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, rose one basis point, or 0.01 percentage point, to 1.70 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