PBOC Cuts Fixing Most in Three Months as Asian Currencies Drop

Updated on
  • Reference rate signals weakening bias, OCBC's Tommy Xie says
  • Regional currencies drop after Singapore eases policy stance

The People’s Bank of China weakened the daily yuan reference rate by the most in three months after the dollar strengthened.

The central bank set the daily fixing of the local currency at 6.4891 to the dollar on Thursday, the lowest level in more than two weeks. The yuan in Shanghai fell 0.1 percent in a third day of declines to 6.4833 at 5:02 p.m. local time.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, extended Wednesday’s rebound from a nine-month low as traders weighed chances of interest-rate increases by the Federal Reserve after retail sales and wholesale prices unexpectedly slumped last month. Asian currencies also fell along with the Singapore dollar after the nation’s central bank surprised by easing monetary policy, returning to a neutral stance it adopted during the global financial crisis in 2008.

The weaker fixing “is a reflection of the overnight dollar recovery,” said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. “Still, it’s slightly weaker than expected, making me feel like there is still a weakening bias.”

The yuan traded offshore slid 0.16 percent to 6.4950, also falling for a third day.

Currency Basket

Singapore’s policy move could indicate that regional central banks, including the PBOC, aren’t willing to maintain currency strength after recent gains, said Zhou Hao, Singapore-based senior economist at Commerzbank AG. A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 exchange rates, rose 0.09 percent to 97.39, halting three days of declines.

The Chinese economy is showing signs of a rebound, with data on factory-gate prices, foreign trade and manufacturing activity all coming in higher than forecast. The government this month outlined a package of fiscal measures including railway spending and tax relief to help create jobs and support the economy.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, gained three basis points to 2.43 percent, according to data compiled by Bloomberg. People are expecting the PBOC’s easing pace will be less aggressive following the better-than-expected data recently, said David Qu, Shanghai-based rates strategist at Australia & New Zealand Banking Group Ltd.

The central bank injected a total 285.5 billion yuan ($44 billion) into 17 financial institutions on Wednesday. That compares with 551 billion yuan of such loans expiring this month. The seven-day repurchase rate, a benchmark gauge of interbank funding availability, was little changed at 2.34 percent, according to National Interbank Funding Center prices.

— With assistance by Helen Sun

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