Markets

China Weakens Yuan Fixing to Lowest Since 2011 as Dollar Climbs

Published

9 years ago

May 25, 2016

China’s central bank weakened its currency fixing to the lowest since March 2011 as the dollar strengthened.

The reference rate was set 0.3 percent weaker at 6.5693 per dollar. A gauge of the greenback’s strength rose to a two-month high Tuesday as traders boosted wagers that U.S. interest rates will rise. The yuan declined 0.06 percent to 6.5631 a dollar as of 5:10 p.m. in Shanghai.

A resurgent greenback is shaking up a strategy that the People’s Bank of China pursued over the past three months — a steady rate against the dollar, combined with depreciation against other major currencies. Traders are now pricing in a better-than-even chance of the Federal Reserve boosting borrowing costs by its July meeting, with officials lining up to indicate their willingness to support such a move, should the current strength in the economy be sustained.

“It could be because the authorities want to alleviate some of the depreciation pressure before the Fed interest rate decision in June,” said Christy Tan, head of markets strategy at National Australia Bank Ltd. in Hong Kong. “If there are signs of panic dollar buying, the PBOC will step in.”

While the fixing is below levels reached during the currency’s turmoil in January, the market rate is still 0.5 percent stronger than its nadir in January as traders show few signs of panic. Even so, investors are watching the currency as a barometer for the health of the world’s second-largest economy. The earliest batch of private indicatorssuggest sluggish growth in May.

“Compared to our model prediction, it’s a little bit weaker, so that’s quite significant,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore.

Chinese officials plan to press their American counterparts in annual talks next month on the chance of a U.S. interest-rate increase in June, according to people familiar with the matter. In China’s view, if the Fed does lift borrowing costs, a July move would be preferable, the people said.

The offshore yuan was little changed at 6.5673.