Offshore Yuan Declines Most Since May on China Data, Fed Outlook

The yuan traded in Hong Kong declined the most in more than three months as signs of a weakening Chinese economy and prospects of higher U.S. interest rates sapped demand for emerging-market assets.

China’s industrial output increased at the slowest pace since December 2008 in August while investment and retail sales data fell short of economists’ forecasts, according to official figures released Sept. 13. The Federal Reserve Open Market Committee will meet Sept. 16-17 to decide on monetary policy. There’s a 61 percent chance the U.S. central bank will increase its benchmark rate by July 2015, federal fund futures show.

The offshore yuan fell 0.3 percent, the most since May 28, to 6.1589 per dollar, according to data compiled by Bloomberg. The yuan lost 0.12 percent to 6.1420 in Shanghai, China Foreign Exchange Trade System prices show. The onshore rate was at a 0.05 percent premium to the reference rate, which the People’s Bank of China raised 0.03 percent to 6.1452.

“China’s August data surprised on the downside,” said Ju Wang, Hong Kong-based currency strategist at HSBC Holdings Plc. “This adds to the market’s suspicion of how much the yuan’s appreciation can extend, especially ahead of FOMC this week where the market expects the Fed to change its forward guidance for the first time. The offshore yuan is more responsive.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 leading global currencies, rose for a sixth day to the highest level since July 2013.

China’s industrial output rose 6.9 percent from a year earlier in August, the statistics bureau said Sept. 13, down from 9 percent in July.

Forecasts Lowered

Banks from Barclays Plc to Nomura Holdings Inc. cut China’s 2014 growth forecasts. Barclays downgraded its estimate to 7.2 percent from a previous 7.4 percent. Gross domestic product expansion may slip to 6.5 percent to 7 percent in the third quarter if September numbers are also weak, Australia & New Zealand Banking Group Ltd. analysts said, down from 7.5 percent in the April-June period.

Twelve-month non-deliverable forwards on the yuan declined 0.2 percent to 6.2409, 1.6 percent weaker than the Shanghai spot rate. One-month implied volatility in the onshore yuan, a measure of expected swings used to price options, was little changed at 1.69 percent, data compiled by Bloomberg show.

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