Photographer: Qilai Shen/Bloomberg

China’s Yuan Set for Steepest Weekly Loss Since January Turmoil

  • Late evening paring of declines spurs intervention speculation
  • Ten-year sovereign bond yields rise most since May 2015

China’s currency headed for its steepest weekly drop since January, when a series of weaker fixings roiled global financial markets, as Donald Trump’s election victory boosted the dollar and raised the threat of a more protectionist America. Bonds tumbled.

The yuan fell 0.05 percent to 6.8121 per dollar as of 5:33 p.m. in Shanghai, approaching the 6.83 level at which China pegged its currency after the 2008 global financial crisis. The exchange rate fell 0.9 percent this week to a six-year low as Trump’s unexpected win spurred a tectonic shift in fund flows. There was a flurry of activity in the evening, with the yuan erasing the day’s losses amid speculation of central bank intervention. The 10-year yield on government debt climbed 10 basis points this week, the most since May 2015.

Bloomberg’s dollar index held near an eight-month high amid speculation the Federal Reserve will boost interest rates to cap inflation as a Trump-led administration steps up spending. Trump has also threatened punitive tariffs on China’s imports. Accelerating declines in the yuan are a turnaround from the August-September period, when policy makers were suspected of propping up the currency before its entry into the IMF’s reserves basket.

"A rally in the dollar has driven the yuan weaker," said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "But if the depreciation accelerates in the coming weeks, there’s still a chance that China could take measures to stabilize the market."

The People’s Bank of China set its yuan fixing 0.34 percent weaker. The currency traded on the mainland erased losses around 5 p.m. to rise as much as 0.2 percent amid a drop in the greenback and speculation that the monetary authority was limiting losses.

Quick Advance

“The quick gain seems to be PBOC intervention,” said Ken Cheung, a Hong Kong-based Asia currency strategist at Mizuho Bank Ltd.. “China wants to smooth the pace of depreciation to suppress bearish sentiment, as it may fear that elevated expectations for further weakness will lead to worse outflows. There won’t likely be any panic in China. Compared with central banks in other Asian emerging markets, the PBOC has strong capability to stabilize the currency market.”

Monetary authorities from India to Indonesia reportedly stepped in to stabilize their currencies amid a selloff. The Indonesian rupiah, Indian rupee and South Korean won were the worst performers. China’s foreign-exchange reserves dropped last month by the most since January, while the country’s exports plunged 7.3 percent, adding pressure for further currency weakness. Trump vowed to impose tariffs of up to 45 percent on Chinese shipments to the U.S.

The yuan rose for a third day against a basket of peers. Currencies including the Brazilian real, Japan’s yen and the euro have tumbled more than 2 percent against the dollar this week. The offshore yuan strengthened 0.12 percent to 6.8219 per dollar on Friday.

China’s aggregate financing totaled 896.3 billion yuan ($131.5 billion) last month, less than the median estimate of 1 trillion yuan in a Bloomberg News survey and 1.72 trillion yuan in September, according to data the PBOC released on Friday.

— With assistance by Tian Chen, Justina Lee, and Helen Sun

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