Yuan Forwards Decline as China Output Gauge Signals Contraction

Yuan forwards fell for the first time in three days as a report on the nation’s factory output missed forecasts, indicating the first contraction since May.

A preliminary Purchasing Managers’ Index of manufacturing was 49.5 for December, the least in seven months and lower than the 50 mark that divides contraction and expansion, according to data released by HSBC Holdings Plc and Markit Economics today. That compares with the median estimate of 49.8 in a Bloomberg survey and November’s final reading of 50. The People’s Bank of China reduced its daily reference rate for the yuan by 0.05 percent to 6.1182 a dollar.

“The yuan will continue to trade weak on rising concerns over China’s economic slowdown,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities Co. “The currency will only rebound significantly when investors see improvement in economic numbers.”

Twelve-month non-deliverable yuan forwards dropped 0.02 percent to 6.3103 against the dollar as of 4:42 p.m. in Hong Kong, according to data compiled by Bloomberg. The contracts traded 1.9 percent weaker than the spot rate in Shanghai, which gained 0.01 percent to close at 6.1903, China Foreign Exchange Trade System prices showed. The onshore yuan traded 1.2 percent weaker than the PBOC’s fixing, within the 2 percent daily limit.

China’s holdings of U.S. Treasuries fell to a 20-month low of $1.25 trillion in October, a $13.6 billion drop from September, the Treasury Department said in a monthly report. The nation remains the largest foreign holder.

The offshore yuan climbed 0.08 percent to 6.1903 a dollar in Hong Kong, according to data compiled by Bloomberg. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, dropped 0.4 percent, the most in a week.

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