Yuan Basket Falls for Fourth Week as Euro, Yen Fixings Weakened

  • Replica of CFETS Index drops to lowest since gauge introduced
  • Policy makers favor lower currency as it helps exports: Mizuho

The yuan fell against a trade-weighted basket for a fourth straight week amid speculation China’s central bank is guiding the currency lower against peers.

A Bloomberg replica of the CFETS RMB Index, which measures the yuan against 13 exchange rates, dropped this week to the lowest level since the official basket was unveiled in December. The People’s Bank of China raised its reference rate against the dollar this week, while lowering the fixings against the other main currencies including the euro, yen and British pound. Policy makers have pledged to keep the yuan stable against the basket.

“Other major currencies’ strength outweighed the loss in the dollar this week and pulled the yuan index lower,” said Ken Cheung, a currency strategist at Mizuho Bank Ltd. in Hong Kong. “Authorities should favor a weaker yuan against peers as it stimulates exports. But as the dollar probably has been oversold in the near term, the yuan index will become more stable if the greenback rebounds.”

The Bloomberg replica of the CFETS index rose 0.06 percent to 97.22 on Friday, paring its weekly drop to 0.17 percent. The yuan traded in Hong Kong fell 0.11 percent to 6.4949 per dollar as of 5:54 p.m., according to prices compiled by Bloomberg, while the rate in Shanghai declined 0.18 percent to 6.4929.

The PBOC has increased the yuan’s fixing against the dollar, which has a 26.4 percent weighting in the index, by 0.02 percent this week. The local currency’s reference rate against the euro, which has the second biggest share, was weakened this week by the most in three weeks, while fixings against the yen and pound have also been cut.

The yuan’s recent movements against the basket can be said to be in a “basically stable range,” Wang Chunying, spokeswoman of the State Administration of Foreign Exchange, said at a briefing in Beijing on Thursday. The CFETS index has retreated 3.5 percent this year.

Companies and individuals bought a net $33.7 billion of foreign currencies from banks last month, the ninth straight deficit. The pace of capital outflows from China was “meaningful,” Goldman Sachs Group Inc. wrote in a note on Thursday.

“Capital outflows from China are still likely in the future but should be manageable and less intense,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “As China’s economy stabilizes, the scale of the yuan’s decline won’t be very sharp and won’t scare the world as before.”

— With assistance by Tian Chen

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