Yuan in Longest Losing Streak Since February as Forecasts Cut

  • ABN Amro, Credit Agricole weaken estimates after Brexit vote
  • China is using opportunity to engineer currency decline: RBC

The yuan headed for its longest run of declines since February as lenders including ABN Amro Bank NV weakened their forecasts for the Chinese currency, citing additional pressure from Britain’s vote to leave the European Union.

The People’s Bank of China will allow a weaker yuan against the greenback because it will focus on keeping its exchange rate stable versus a trade-weighted basket, ABN Amro strategist Roy Teo wrote in a note Tuesday. He downgraded the yuan’s year-end estimate to 6.8 a dollar from 6.7 previously. Goldman Sachs Group Inc. cut its 12-month estimate for the yuan’s fixing to 7 from 6.8, while Credit Agricole CIB revised its prediction of an annual gain in the exchange rate to a decline.

An index tracking the yuan versus 13 peers has dropped for eight of the nine days since Britain’s referendum, spurring speculation the Chinese central bank is seeking further depreciation as the risk of slower growth in the EU threatens exports. The yuan has under-performed Asian currencies against the dollar and the pound since the June 23 Brexit vote.

“China is taking the opportunity while the focus is on Brexit, to let market forces do the trick to help engineer” yuan weakness, said Sue Trinh, Royal Bank of Canada’s Hong Kong-based head of Asian foreign-exchange strategy. China’s economic fundamentals “have always pointed” toward further depreciation, she said.

The yuan fell 0.16 percent to 6.6924 per dollar as of 4:45 p.m. in Shanghai, extending its decline over a five-day period to 0.8 percent. The offshore yuan traded in Hong Kong dropped 0.19 percent to 6.7017, after earlier touching the weakest level since January. A Bloomberg replica of the CFETS RMB Index, the 13-currency basket monitored by the PBOC, retreated 0.06 percent to 94.43.

The declines come before government data due Thursday, which are expected to show China’s foreign-exchange reserves fell to $3.167 trillion, the lowest since 2011, according to the median estimate in a Bloomberg survey.

“We now anticipate intensification of capital outflows in the third quarter, as well as of negative expectations in the market,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole, wrote in a note. “The PBOC seems keen to guide the currency lower to compensate somewhat for an expected loss” of European and British demand for Chinese exports, he said.

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