Yuan Drops to Record Amid Bets PBOC Helping Exports

yuanAn employee places Chinese one-hundred yuan banknotes into a money counting machine in an arranged photograph at the Bank of China Hong Kong Ltd. headquarters in Hong Kong, China, on Thursday, Nov. 12, 2015. Photographer: Xaume Olleros
  • Yuan Drops to Record Amid Bets PBOC Helping Exports

China’s yuan dropped to a record low against a trade-weighted currency basket amid speculation policy makers are using recent dollar weakness to boost the competitiveness of the nation’s export.

The CFETS RMB Index, which measures the yuan against 13 exchange rates, fell to 93.78 Friday. That’s the lowest since the gauge was introduced in December. The basket usually declines when the greenback weakens because the yuan tends to rise less against the U.S. currency than its peers, said Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc in Singapore.

“The PBOC is intentionally allowing a weaker yuan as it hasn’t done any great intervention to prop up the exchange rate,” said Zhou Hao, economist at Commerzbank AG in Singapore. “A weaker currency makes more sense for China now as it helps the economy.”

China’s monetary authority was speculated to prop up the yuan during the run-up to a Group of 20 meeting in September and the yuan’s entry into the International Monetary Fund’s reserves on Oct. 1. The PBOC was then seen pulling support, leading to a 1.5 percent tumble in October as a gauge of dollar strength surged on mounting bets of Federal Reserve tightening.

Fortunes have flipped again this week, with growing unease in global markets fueled by an ABC News/Washington Post poll that placed Republican presidential candidate Donald Trump one percentage point ahead of Democratic rival Hillary Clinton. The Bloomberg Dollar Spot Index has fallen 0.8 percent since Friday, when the Federal Bureau of Investigation said it had reopened its investigation into Clinton’s use of an unauthorized e-mail server.

The yuan basket’s decline is a surprise for market watchers, with a Bloomberg survey of 21 analysts and traders last month predicting that the PBOC will keep the gauge at 94 the rest of this year. China’s exports unexpectedly shrank the most in seven months in September and industrial production fell short of estimate, increasing pressure on policy makers to take steps to support economic growth. Although manufacturing data for October painted a brighter picture.

The yuan climbed 0.02 percent to 6.7610 a dollar as of 12:03 p.m. in Shanghai on Friday, taking its gain for the week to 0.3 percent. That’s the biggest weekly advance since July. The offshore yuan traded in Hong Kong was little changed for the day and up 0.2 percent for the week.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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