Offshore Yuan Drops Most in Two Weeks as Selloff Saps Sentiment

  • Best way to slow outflows is to signal stability: Goldman
  • PBOC likely to keep yuan’s fixing steady Monday: Strategist

The offshore yuan fell the most in almost two weeks, tracking Asian currencies and stocks lower as a global selloff eroded the appeal of riskier assets.

Equity markets sank into bear territory amid skepticism central banks can arrest a slide in the world economy. The Bloomberg-JPMorgan Asia Dollar Index fell for a second day while stocks in Hong Kong closed at their lowest level in more than three years. Federal Reserve Chair Janet Yellen said this year’s global tumult was in response to a drop in the yuan and in oil prices, and not the U.S. central bank’s rate increase in December.

The yuan traded in Hong Kong fell 0.11 percent, the most since Feb. 2, to 6.5370 a dollar as of 5:31 p.m. local time, according to China Foreign Exchange Trade System prices. The currency rose 0.5 percent for the week. China’s onshore financial markets will reopen on Monday, after a week-long holiday, with investors watching out for what the People’s Bank of China will do with the yuan’s reference rate.

“There’s a tug of war right now as people are debating whether the dollar’s weakness and its effect on emerging-market currencies will be sustainable,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. China’s central bank is likely to keep the yuan’s fixing stable on Monday, he added.

Weakening Strategy

China’s strategy of weakening the yuan periodically is unsustainable because it spurs market selloffs and speeds up capital outflows, Goldman Sachs Group Inc. strategists led by Robin Brooks wrote in a note on Wednesday. China may prefer a stable yuan to a “large, one-off” devaluation, buoying global assets such as U.S. stocks and the dollar, the strategists wrote.

“Given that regulatory measures to stem outflows may ultimately prove insufficient, the best way to slow capital flight is to signal stability” in the yuan’s daily reference rate “at least for the foreseeable future,” they said.

The nation’s foreign-exchange reserves shrank by $99.5 billion to $3.23 trillion in January as the central bank was seen intervening in both the onshore and offshore markets to slow the yuan’s decline. The contraction was less than a Bloomberg survey’s median estimate of a $120 billion drop. The onshore yuan has declined 1.24 percent so far this year. A gauge of the dollar’s strength fell 0.9 percent this week.