China Yuan Trades at Deepest Discount to PBOC Fixing Since JuneFion Li
China’s yuan dropped to trade at the biggest discount to the central bank’s reference rate since June on signs that increased volatility in global financial markets is fueling demand for the greenback.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, climbed before the Federal Reserve concludes a two-day policy meeting today. A plunge in Russia’s ruble over the last seven days took a Bloomberg index of 20 emerging-market currencies to the lowest in data going back to 2002. The People’s Bank of China raised its daily fixing by 0.07 percent to 6.1137 a dollar, the strongest since Feb. 19.
“Hedging behavior, considering global market volatility, as well as a less interventionist central bank is contributing to yuan weakness,” said Sacha Tihanyi, a Hong Kong-based currency strategist at Scotiabank. “We take the fixing as a signal of policy intention and stabilization.”
The yuan declined 0.12 percent to close at 6.1975 per dollar in Shanghai, China Foreign Exchange Trade System prices show. The currency traded 1.35 percent weaker than the PBOC’s fixing, within the 2 percent daily limit. That’s the biggest discount since June 9.
The Asian Development Bank today lowered its 2015 economic growth forecast for China to 7.2 percent from 7.4 percent, and that for this year to 7.4 percent from 7.5 percent. A preliminary Purchasing Managers’ Index of manufacturing was at a seven-month low of 49.5 for December, data from HSBC Holdings Plc and Markit Economics showed yesterday. A reading below 50 indicates contraction.
The offshore yuan declined 0.1 percent to 6.1976 per dollar in Hong Kong, according to data compiled by Bloomberg. Twelve-month non-deliverable yuan forwards fell 0.1 percent to 6.3148, a 1.85 percent discount to the onshore spot rate.