Yuan Nears Weak End of Trading Band on Capital Outflow Signs

China’s yuan dropped to a one-week low, nearing the weak end of its daily trading range, after data signaled capital is leaving the country amid speculation the central bank will ease monetary policy to help the economy.

Yuan positions for foreign-exchange purchases at Chinese financial institutions fell 108.3 billion yuan ($17.3 billion) to 29.3 trillion yuan in January, the lowest in a year, according to People’s Bank of China figures released Tuesday. The data showed persistent weakness in the demand for yuan and suggested that the PBOC probably supported the currency by buying it in the market, Goldman Sachs economists MK Tang, Yu Song and Maggie Wei wrote in a note Tuesday. Domestic markets will be shut Feb. 18 through Feb. 24 for the Lunar New Year.

The yuan fell 0.11 percent to close at 6.2551 a dollar in Shanghai, China Foreign Exchange Trade System prices show. That’s the lowest since Feb. 5 and close to the weak end of the central bank’s 2 percent trading limit. The PBOC cut the reference rate by 0.09 percent, the most in more than two weeks, to 6.1330.

“The fall in yuan positions indicates that domestic investors are growing less optimistic about the currency and capital is fleeing China,” Xiang Chu, a Shanghai-based foreign-exchange analyst at Industrial Bank Co., said by phone. “The market is expecting the PBOC to announce more easing policies and the yuan to depreciate further, so the capital outflows will continue.”

The PBOC is likely to gradually guide the fixing higher and also widen the yuan’s trading band, considering that the dollar will strengthen as the Federal Reserve normalizes interest rates, Credit Suisse Private Bank analysts Koon How Heng and Pascal Zingg wrote in a note Tuesday.

The offshore yuan traded in Hong Kong dropped 0.23 percent to 6.2821 a dollar, the lowest since Feb. 2, as of 5:04 p.m. local time, according to data compiled by Bloomberg. Twelve-month non-deliverable yuan forwards declined 0.07 percent to 6.3935, 2.16 percent weaker than the Shanghai rate.

— With assistance by Tian Chen

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