Photographer: Brent Lewin/Bloomberg

Yuan Drops to Record Discount Versus Fixing, Nears Daily Limit

China’s yuan declined to a record discount against the central bank’s reference rate, pushing it toward the daily trading limit as the dollar strengthened.

The currency dropped 0.07 percent to close at 6.2480 a dollar in Shanghai, according to prices from the China Foreign Exchange Trade System. It fell to as low as 6.2488, or 1.93 percent weaker than the People’s Bank of China reference rate and close to the daily divergence limit of 2 percent. The monetary authority raised the fixing by 0.13 percent Wednesday, the most since Dec. 8, to 6.1282.

A move to the 2 percent threshold would require policy makers to intervene to support the yuan, cut the reference rate or widen the band. The Bloomberg Dollar Spot Index gained 0.2 percent, after dropping 0.6 percent on Tuesday as data showed U.S. durable-goods orders decreased in December for a fourth month. China’s foreign-exchange reserves were $3.84 trillion in December, the world’s largest stockpile.

“I don’t think the PBOC will do anything drastic at this moment in time,” said Tommy Ong, executive director for treasury and markets at DBS Bank Hong Kong Ltd. “If there is a chance the yuan is hitting the 2 percent trading limit, it helps the PBOC unload some of its foreign-exchange reserves.”

The central bank revised one of the yuan’s reference rates during trading hours Monday, weakening the fixing against the British pound by 2.1 percent to 9.2406 after price quotes for the currency pair failed to fall within the permitted trading range. The PBOC last widened the yuan’s trading band against the dollar to 2 percent in March 2014.

China’s currency overtook Canada’s dollar to rank fifth for global payments last month with a record market share of 2.17 percent, the Society for Worldwide International Financial Telecommunications said.

In Hong Kong’s offshore trading, the yuan declined 0.1 percent to 6.2539 a dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards slid 0.2 percent to 6.3575, a 1.7 percent discount to the spot rate in Shanghai.

— With assistance by Fion Li, and Tian Chen

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