Yuan Weakens Most Since June as Trading Resumes After Holidays

  • Currency drops to lowest level since 2010 amid dollar strength
  • Offshore rate fell by similar magnitude during China break

Yuan Fix Weakened to 2010 Levels

The yuan tumbled the most in four months as China’s markets reopened after a week-long break.

The currency fell as much as 0.46 percent in Shanghai to 6.7051 a dollar, the weakest since September 2010. The offshore exchange rate declined by a similar magnitude during the mainland holidays, while a gauge of the greenback’s strength rallied 1 percent. Until today, China’s central bank was speculated to be keeping the currency stronger than the 6.7 level as it sought to limit capital outflows.

“This sends the signal that the yuan’s future path may be more event-driven, meaning China will allow it to drift lower when there is a big event on the dollar as we saw last week,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “Today’s spot will be very important and the market will closely watch whether the yuan will close beyond 6.7 or not.”

China’s foreign-exchange reserves shrank to $3.17 trillion last month, the lowest since 2011, in an indication that China’s central bank was previously selling dollars to support the yuan. The currency moved less than 0.1 percent on a closing basis in the two weeks before it became part of the International Monetary Fund’s Special Drawing Rights on Oct. 1. Now that the entry is done, the People’s Bank of China may allow greater flexibility, according to Commonwealth Bank of Australia.

Fixing Weakened

The onshore yuan was trading at 6.7029 a dollar as of 4:58 p.m. in Shanghai, while the rate in Hong Kong was little changed at 6.7091. The People’s Bank of China earlier set the yuan’s daily fixing, which limits onshore moves to 2 percent on either side, at 6.7008, the weakest level since Sept. 30, 2010. The onshore yuan has weakened 3.1 percent against the dollar this year, the most in Asia, and dropped almost 7 percent versus a trade-weighted gauge.

“The yuan should have fallen below 6.7 last month, but it was the intervention from the PBOC that was preventing it,” said Sean Yokota, Singapore-based head of strategy at SEB AB. “We still need to continue monitoring whether the PBOC will continue adopting a more market-based fixing system, or it will step in again if it sees heavy depreciation pressure.”

A Bloomberg replica of the trade-weighted CFETS RMB Index, which measures the yuan against 13 currencies, rose 0.3 percent to 94.32 on Monday. That’s the highest since Sept. 21.

Money Rates

In the money markets, the PBOC injected 60 billion yuan ($9 billion) via open-market operations on Sunday, and drained a net 90 billion yuan on Monday, data compiled by Bloomberg show. Banks and government offices opened on Saturday and Sunday to compensate for the week-long holiday.

The seven-day repurchase rate, a benchmark gauge of interbank funding availability, dropped 31 basis points in the past three days to 2.27 percent, weighted average prices show. The yield on government debt due August 2026 rose three basis points, the most since August, to 2.72 percent after falling five basis points in the last two days, according to National Interbank Funding Center prices.

— With assistance by Robin Ganguly, Helen Sun, and Kyoungwha Kim

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