Offshore Yuan Drops as U.S. Data Boost Fed Rate-Increase Bets

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The yuan traded in Hong Kong fell for the first time in three days as U.S. retail sales data supported the case for the Federal Reserve to raise interest rates this week.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, advanced Tuesday after a report showed U.S. retail sales climbed for a second straight month in August. Yuan positions at the People’s Bank of China and financial institutions fell the most on record last month, adding to signs of capital outflows and suggesting the authority propped up the currency after a surprise devaluation on Aug. 11.

"The yuan is pressured by a stronger dollar and the expectation that the Fed will raise interest rates this week," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "The currency is faced with depreciation pressures, but will remain generally stable in the next few months amid the PBOC’s efforts to restore confidence as capital leaves China."

The offshore yuan in Hong Kong, which trades freely, declined 0.05 percent to 6.4037 a dollar as of 4:31 p.m., according to data compiled by Bloomberg. The rate in Shanghai, which can only move as much as 2 percent either side of a PBOC fixing, closed little changed at 6.3709, according to China Foreign Exchange Trade System prices. The monetary authority lowered the reference rate by 0.07 percent, the first cut in four days, to 6.3712.

The yuan will probably be kept steady in the coming weeks because Chinese President Xi Jinping is visiting the U.S. Sept. 22-25, said OCBC’s Xie.

— With assistance by Tian Chen

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