Yuan Weakens for Sixth Day on Signs China’s Slowdown DeepeningFion Li
China’s yuan fell for a sixth day, touching a 16-month low, on signs a slowdown in the world’s second-largest economy is deepening.
The country’s growth will weaken further, Credit Suisse Group AG’s Chief Regional Economist Dong Tao said at a conference in Hong Kong yesterday, adding that he’s pessimistic on the short-and medium-term outlooks. The current-account surplus was $7.2 billion in the first quarter, compared with $47.6 billion in the first three months in 2013, according to a statement on the State Administration of Foreign Exchange website today. HSBC Holdings Plc cut its yuan estimate today.
The yuan dropped 0.08 percent to close at 6.2536 per dollar in Shanghai, China Foreign Exchange Trading System prices show. It touched 6.2583 earlier today, the weakest level since Dec. 12, 2012, and has declined 0.47 percent since April 18. The yuan has fallen 3.2 percent this year, the worst performance among Asia’s 11 most-traded currencies.
“The pessimism on China remains and officials may prefer a weaker yuan to steer export growth,” said Daniel Chan, a Hong Kong-based strategist at China Silver Global Investment Consultant Ltd. “The next key level is 6.3, at which we may see another round of unwinding in structured products, and so the selling pressure is still on.”
The People’s Bank of China strengthened the reference rate 0.02 percent to 6.1576 per dollar today. The yuan traded 1.56 percent weaker, within the 2 percent limit. That’s the biggest gap since the trading band was widened from 1 percent either side of the fixing in March.
A preliminary reading for the Purchasing Managers’ Index for manufacturing was at 48.3 in April, from a final figure of 48 in March, HSBC and Markit Economics data showed this week. Fifty is the dividing line between expansion and contraction. Exports fell 6.6 percent in March from a year earlier and gross domestic product increased 7.4 percent in the first quarter, the least since the three months through September 2012.
HSBC, the top underwiter of offshore yuan bonds, reduced its year-end forecast for the Chinese currency to 6.14 per dollar, from 5.98, according to a report by strategists led by Paul Mackel in Hong Kong.
“The overriding focus for fx policy will be to continue to induce more volatility into the onshore exchange rate, which should help discourage hot-money inflows,” Mackel wrote. Softer growth and inflation suggest it’s unrealistic to expect policymakers to allow significant yuan gains, he wrote.
The offshore yuan fell 0.14 percent to 6.2591 per dollar in Hong Kong, after touching an 18-month low of 6.2622 earlier today, data compiled by Bloomberg show. Twelve-month non-deliverable forwards slipped 0.02 percent to 6.2692, a 0.2 percent discount to the Shanghai spot rate.
One-month implied volatility in the onshore yuan, a gauge of expected exchange-rate swings used to price options, increased seven basis points, or 0.07 percentage point, to 2.19 percent today, according to data compiled by Bloomberg. It climbed 21 basis points this week.