Offshore Yuan Falls for Fourth Day on Bets PBOC Has Weaker Bias

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Assessing the Health of China's Economy
  • Monetary authority lowers fixing to lowest since March 28
  • Currency fell to lowest versus basket since 2014 last week

The offshore yuan headed for its longest losing streak in a month against the dollar as the central bank cut the fixing and speculation grew authorities are comfortable with greater currency weakness.

The yuan traded in Hong Kong fell 0.04 percent to 6.5068 per dollar as of 4:36 p.m. local time. It dropped as low as 6.5169 earlier, the lowest level in nearly a month. The People’s Bank of China lowered the fixing for a third day after a gauge of the greenback’s strength climbed on Friday.

Declines by the Chinese currency against an index of 13 peers is spurring speculation the authorities are guiding the yuan lower to help exporters, despite government pledges of “stability” against the basket. A Bloomberg replica of the CFETS RMB Index fell to a 17-month low last week.

“The yuan weakened because the dollar rebounded and the PBOC created this image of it having a depreciation bias by quietly pushing the currency basket lower,” said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. “But everything comes with a cost -- if the PBOC’s bias is too obvious, it’s going to confuse the market of policy intention.”

The PBOC cut the yuan’s fixing against the dollar by 0.34 percent to 6.5120 on Monday, the lowest level since March 28. A Bloomberg replica of the CFETS index rose 0.08 percent to 97.3. The official CFETS Index declined to 97.22, the weakest level since it was unveiled in December on Friday. The basket will probably decline to 97 in the near term, while the yuan will weaken to 6.6-6.7 against the dollar by end of the year, Xie said.

— With assistance by Tian Chen

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