Offshore Yuan Falls Most in a Week as China Manufacturing Drops

China Manufacturing PMI Drops for Sixth Month
  • Depreciation pressure to persist as data disappoint: ANZ
  • U.S. broker raises margin requirement for yuan trades

The yuan traded in Hong Kong dropped the most in more than a week as China’s official factory gauge fell to a three-year low.

The purchasing managers index contracted for the record sixth month, according to data released Monday, as demand slowed and the government reduced excess industrial capacity. Services, which accounted for more than half of the economy last year, continued to expand. The Bank of Japan unexpectedly imposed negative interest rates on Friday, adding to depreciation pressure on Asian currencies.

The yuan traded in Hong Kong fell 0.18 percent to 6.6058 against the greenback as of 6:22 p.m. local time, data compiled by Bloomberg show. The onshore exchange rate retreated 0.03 percent to 6.5788 in Shanghai, according to China Foreign Exchange Trade System prices, after the People’s Bank of China lowered its daily fixing by 0.04 percent to 6.5539.

“Depreciation pressure will continue as economic data continue to disappoint, the U.S. dollar strengthens and the Bank of Japan’s move last week adds pressure to markets,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Authorities are likely to keep the fixing stable ahead of the Lunar New Year holiday.”

FX Reserves

China should ensure a certain level of foreign-exchange reserves and adopt necessary capital controls, Zuo Xiaolei, special researcher at the Counsellors’ Office of the State Council, wrote in a commentary in the Shanghai Securities News. The nation burnt through an estimated $1 trillion of its currency stockpile last year, partly because it sold foreign-exchange to prop up the yuan.

The onshore currency sank 1.3 percent last month, the biggest January decline since its peg to the dollar was scrapped in 2005. That was three times the drop in the offshore rate in Hong Kong, where the PBOC intervened to deter speculators betting on depreciation. China has no intention of devaluing the yuan to spur exports, Premier Li Keqiang told International Monetary Fund Managing Director Christine Lagarde, according to a statement Thursday on the State Council’s website.

Interactive Brokers Group Inc. raised its margin requirements to hold yuan traded in Hong Kong to 10 percent, according to an e-mail notification seen by Bloomberg News. Margins are deposits that clients pay brokers to trade. This comes after U.S. foreign-exchange broker FXCM Inc. was said to limit positions for the offshore yuan against the greenback on concern volatility will increase, according to people familiar with the matter.

“The recent turbulence and volatility in the China currency market increases concerns about policy-driven rate events (as opposed to market driven rate changes),” Interactive Brokers said in the e-mail. The company, based in Greenwich, Connecticut, also raised margin requirements to hold the Hong Kong dollar.

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