Yuan Falls Most in Two Months as Trading Resumes After Holidays

Updated on
  • Currency is approaching five-year low set in January
  • Greenback strengthened 1.1 percent while China was shut

The yuan fell by the most in two months as trading resumed for the first time since Wednesday.

The Chinese currency lost 0.4 percent to 6.5864 a dollar as of 4:52 p.m. in Shanghai, approaching a five-year low, after the central bank weakened the yuan’s reference rate by 0.3 percent. A gauge of the greenback’s strength climbed 1.1 percent during the two days that mainland markets were closed.

Losses in the yuan have accelerated in recent weeks as the dollar strengthened and China’s economic outlook deteriorated. Data Monday showed industrial output rose 6 percent in May from a year earlier, while fixed-asset investment increased 9.6 percent in the first five months of 2016, missing all 38 economist forecasts.

“There is a high chance the yuan will break the January low," said Wang Ju, senior foreign-exchange strategist at HSBC Holdings Plc. "The fundamentals for the yuan are weak: the economy is slowing and capital is flowing out of China."

The yuan added 0.09 percent in Hong Kong, after falling 0.6 percent over Thursday and Friday. The Shanghai Composite Index slumped 3.2 percent on Monday.

Bonds Advance

Government bonds climbed, with the yield on notes due May 2026 falling three basis points to 3 percent, according to National Interbank Funding Center prices. That’s the biggest yield drop for the similar-maturity benchmark since March.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, declined two basis points to 2.57 percent, data compiled by Bloomberg show.

China’s gross domestic product may expand at a slower pace this quarter from the first three months of 2016, and the chances of a reserve-requirement ratio cut are increasing, Liu Dongliang, senior analyst at China Merchants Bank Co., wrote in a note.

— With assistance by Helen Sun

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