Offshore Yuan Declines After PBOC Lowers Fixing Most in a Week

  • China wants an orderly depreciation, not one-way bets: analyst
  • Currency rallies in Shanghai following plunge late last week

The offshore yuan fell for a third day, dragged down by a weaker central bank fixing and a decline in Asian currencies driven by a slump in oil prices.

While the yuan’s volatility has increased against the dollar, the currency stayed basically stable versus a basket of exchange rates in March, the China Foreign Exchange Trade System said on its website late last week. A gauge of regional exchange rates dropped on Tuesday.

The yuan traded in Hong Kong retreated 0.13 percent to 6.4805 a dollar as of 5:02 p.m. local time, according to prices compiled by Bloomberg. The rate in Shanghai rallied 0.23 percent to 6.4726 after plunging 0.6 percent on Friday. The People’s Bank of China weakened its daily reference rate, which restricts onshore moves to 2 percent on either side, by 0.12 percent, the most since March 24. Chinese markets were shut for a holiday on Monday.

“The PBOC wants depreciation but in an orderly manner,” said Ryan Lam, Hong Kong-based head of research at Shanghai Commercial Bank Ltd. “They don’t want to have speculators bet in one direction so they change fixings from time to time.”

The seven-day repo rate, a gauge of interbank funding availability, was little changed at 2.29 percent, according to weighted average prices from the National Interbank Funding Center. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose one basis point to 2.33 percent, according to data compiled by Bloomberg. The yield on government bonds due January 2026 climbed four basis points to 2.88 percent.

Basket Weakness

A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 exchange rates, dropped to 97.9, the the lowest level since November 2014, on Tuesday. The basket is at a critical level that may bring the government’s pledge of keeping the Chinese currency stable on a trade-weighted basis into question, Credit Suisse Group AG strategists including Ray Farris wrote in a note Tuesday.

"There is greater two-way movement these days in the yuan as the currency is being managed more on a trade-weighted basis than versus the dollar," said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. "The net result of that is potentially more volatility against the dollar than was previously seen."

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