Yuan Falls to Three-Week Low on China Trade Data, Fed Rate Bets

  • Drop in October exports exceeds forecasts in Bloomberg survey
  • Fed rate rise seen triggering outflows from emerging markets

The yuan dropped to the lowest in almost three weeks after a slump in China’s trade flows worsened the outlook for Asia’s largest economy and as the Federal Reserve prepares to raise interest rates.

China’s exports fell for a fourth month in October, exceeding the decline estimated by all 31 economists in a Bloomberg survey, official data showed Sunday. Imports fell for a 12th month, matching a record stretch of contractions. A gauge of the dollar’s strength versus its major peers soared to the highest level in a decade on Friday after a report showed U.S. payrolls last month gained the most this year in October. That boosted the odds of a Fed rate increase in 2015 to 70 percent from 34 percent two weeks earlier.

"China’s trade data showed that its economy is challenged by sluggish demand at home and abroad, and the fundamentals are still weak," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. "There are stronger expectations for a rate increase in the U.S., which will attract capital from emerging markets such as China, and that’s also pressuring the yuan."

The yuan in Shanghai, which is allowed to diverge a maximum 2 percent from the central bank’s fixing, dropped 0.14 percent to close at 6.3622 a dollar, according to China Foreign Exchange Trade System prices. It fell to 6.3678 earlier, the lowest since Oct. 20.

Singapore’s quota under the RMB Qualified Foreign Institutional Investor scheme will be doubled to 100 billion yuan, the Monetary Authority of Singapore said in a statement Monday. The change was one of the key outcomes from President Xi Jinping’s recent visit to the city-state, MAS said in the statement.

PBOC Fixing

The People’s Bank of China weakened its daily reference rate for the currency by 0.19 percent to 6.3578 a dollar. The offshore yuan, which trades freely in Hong Kong, gained 0.03 percent to 6.3899 as of 4:47 p.m. local time, data compiled by Bloomberg show.

China’s overseas shipments dropped 6.9 percent in October in dollar terms, the customs administration said Sunday. Weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8 percent, leaving a record trade surplus of $61.6 billion.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, jumped 1.1 percent on Friday to close at the highest level since its inception at the end of 2004.

China’s foreign-exchange stockpile rose to $3.53 trillion last month from $3.51 trillion at the end of September, according to official data released Saturday. That compared with a drop of $43.3 billion in September and a record $93.9 billion slide in August.

China will allow foreign central banks to trade all onshore currency products, including spots, forwards, swaps and options, the PBOC said in a statement Friday, as authorities seek the yuan’s inclusion in the International Monetary Fund’s basket of reserves in a review later this month.

— With assistance by Tian Chen

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