Yuan Weakens Beyond 6.20 Per Dollar for First Time in 11 MonthsFion Li
China’s yuan slid below 6.20 per dollar for the first time since April as the central bank cut the currency’s fixing amid concern that rising financial risks will slow growth in the world’s second-largest economy.
The People’s Bank of China cut the reference rate 0.02 percent to 6.1351 against the greenback today, the weakest since Dec. 3. The PBOC said yesterday it’s not involved in dealing with risks from the collapse of Zhejiang Xingrun Real Estate Co., a closely held company with 3.5 billion yuan ($565 million) of debt. Yuan positions at Chinese financial institutions accumulated from foreign-exchange sales rose by 128.2 billion yuan in February, the smallest monthly increase since September.
The yuan fell 0.07 percent to close at 6.1965 per dollar in Shanghai, China Foreign Exchange Trade System prices show. The currency touched 6.2040 earlier, the lowest since April 8, and has dropped almost 1 percent in four days. The spot rate was 1 percent weaker than the central bank’s fixing, within the 2 percent limit of a trading that was doubled this week.
“Near-term bias is still for yuan weakening and the fixing is grinding higher for” the dollar, said Irene Cheung, Singapore-based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. A wider band “opens more leeway” for the yuan to fall against the greenback, she said.
The level of 6.20 per dollar is key as that’s where structured products will likely incur sizable losses to Chinese companies hedging against sustained yuan appreciation, Bank of America Merrill Lynch strategists Claudio Piron, Christy Tan and Albert Leung wrote in a March 16 report.
Direct trading between China’s yuan and New Zealand’s dollar started today, a move that will help reduce transaction costs as trade between the two nations grows. The PBOC set the yuan reference rate against the kiwi dollar at 5.2899, from which the Chinese currency is allowed to diverge a maximum 3 percent on either side.
Weaker growth in China and emerging markets has become the main concern among global investors, according to a survey of 970 market participants conducted by Barclays between March 7 and March 14. About 84 percent of the investors polled expect China won’t meet its official target of 7.5 percent economic growth this year, Barclays said.
In offshore trading, the yuan slipped 0.09 percent to 6.1873 per dollar in Hong Kong, according to data compiled by Bloomberg. The spot rate touched 6.1994, the weakest since April 9. Twelve-month non-deliverable forwards fell 0.12 percent to 6.2265 per dollar, trading at a 0.5 percent discount to the onshore spot rate.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 18 basis points, or 0.18 percentage point, to 2.49 percent, according to data compiled by Bloomberg.