Yuan Weakens Past 6.7 Versus Dollar for First Time in Five Years

Updated on
  • Currency drops to lowest level since 2010 as home prices cool
  • Market may take it as signal PBOC will allow further drop: ANZ

China’s yuan fell beyond 6.7 per dollar for the first time in more than five years, fueling depreciation concerns amid cooling property prices and a rebound in the dollar.

There’s room for further declines because the greenback is set to strengthen further, although the People’s Bank of China may provide some verbal support, according to HF Financial Group Ltd. in Hong Kong. Official data released Monday showed new home prices rose in fewer cities in June compared with a month earlier, blunting optimism prompted by last week’s figures showing forecast-beating economic growth.

China’s policy makers are trying to balance the need for a weaker yuan to help exports with efforts to avoid igniting depreciation pressures that would lead to surging capital outflows. Overseas shipments declined for the third month in a row in June, even as the yuan dropped 2.2 percent against an index of trading peers.

“The onshore yuan’s break of the 6.7 level will likely have an impact on sentiment, as the market may take this as a signal that the authorities could allow further depreciation," said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "The offshore exchange rate will likely weaken further from this point."

2010 Low

The yuan fell 0.2 percent to 6.7014 per dollar as of 5:34 p.m. in Shanghai. It dropped to 6.7021 earlier, the weakest level since September 2010. The currency traded in Hong Kong’s offshore market was little changed at 6.7112.

The monetary authority weakened the yuan’s daily fixing to the lowest since 2010 after the dollar strengthened Friday following a coup attempt in Turkey. The greenback was supported on Monday also as China said it would hold military exercises in the South China Sea.

The announcement of military drills to be held July 19-21 comes after the Permanent Court of Arbitration last week ruled that the nation’s island-building and other efforts to assert control over disputed waters had "aggravated" tensions.

A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 currencies, rose to 94.46, the highest since July 5. The trade-weighted gauge posted its first weekly advance since the end of May last week. The change in direction for the yuan index indicates the PBOC may have intervened to curb mounting bearish speculation on the yuan, said Zhou Hao, Singapore-based senior economist at Commerzbank AG.

In the money markets, the PBOC provided 227 billion yuan ($34 billion) of funds via its Medium-term Lending Facility on Monday to 14 financial institutions. It kept the interest rates unchanged, according to a statement on its official Weibo. The injections compare with 201 billion yuan of MLF due this week, data compiled by Bloomberg show.