Yuan Extends Declines Versus Peers on Economic Outlook Concern

Updated on
  • Bloomberg replica of CFETS RMB Index slides for fourth day
  • Yuan has fallen against 16 major peers in past month

The yuan extended a slide against its trade-weighted peers for a fourth day amid concern the outlook for the world’s second-largest economy will deteriorate.

A Bloomberg replica of the CFETS RMB Index dropped 0.1 percent against the basket that includes the yen and euro, taking its four-day loss to 0.7 percent. The Chinese currency has fallen against all but one of 17 major global peers in the past month, including losses of about 6 percent versus the yen and the South African rand. The yuan added 0.1 percent to 6.5808 per dollar at 4:48 p.m. local time.

A preliminary report Wednesday by China Minsheng Banking Corp. and China Academy of New Supply-side Economics showed a factory gauge slumped in June. The falling currency has weighed on demand for the nation’s stocks and bonds -- the Shanghai Composite Index is the world’s worst performer this year, while the yield on the 10-year government bond has risen 12 basis points, the only increase among similar-maturity sovereign debt in the 15 biggest economies.

“Weak economic fundamentals are weighing on the currency,” said Carol Pang, vice president for fixed income, currency and commodities at Zhongtai International Holdings Ltd. in Hong Kong. “The situation probably won’t change until next year. Global investors meanwhile are not willing to hold the currency or yuan assets, as they think it’s likely to weaken further.”

Overseas Uncertainty

The PBOC weakened the yuan’s daily reference rate against the dollar by 0.4 percent on Wednesday, the most since May 30, after the Bloomberg Dollar Spot Index climbed 0.3 percent overnight.

The economy may not have bottomed out despite a rebound in some indicators in the first quarter, the China Securities Journal reported Tuesday, citing People’s Bank of China former adviser Li Daokui. Overseas uncertainty is an important factor in deciding the yuan’s exchange rate, and China should maintain a certain level of flexibility in currency policies, according to a front-page commentary in the same newspaper, written by reporter Ren Xiao.

The prospect of a British vote to leave the European Union is causing a headache for officials in Beijing, given the likely turmoil in financial markets that would follow. Sharp declines in the Chinese currency would prompt intervention by the central bank, according to Roy Teo, a senior currency strategist at ABN Amro Bank NV.

— With assistance by Helen Sun

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