China's yuan falls to near one-year low as economy worries mount

China's yuan fell beyond 6.20 to the dollar on Wednesday, March 19, 2014, for the first time since April last year amid market speculation the central bank will keep the currency weak as economic growth slows down. -- FILE PHOTO: REUTERS
China's yuan fell beyond 6.20 to the dollar on Wednesday, March 19, 2014, for the first time since April last year amid market speculation the central bank will keep the currency weak as economic growth slows down. -- FILE PHOTO: REUTERS

HONG KONG (Reuters) - China's yuan fell beyond 6.20 to the dollar on Wednesday for the first time since April last year amid market speculation the central bank will keep the currency weak as economic growth slows down.

The yuan has tumbled 0.8 per cent this week after the People's Bank of China (PBOC) doubled the daily trading band for the currency to 2 per cent from the mid-point set each day by the central bank.

Spot yuan briefly fell to 6.2009 per dollar by midday, down 0.14 per cent from Tuesday's close of 6.1920 and more than 1 per cent weaker than the mid-point set earlier of 6.1351.

"The yuan may not appreciate this year given China's weak economy," said a trader in Shanghai. "The return of yuan strength will not only rely on when the economy bottoms out, but when fresh long yuan funds come in."

Data this year, including a surprise 18 per cent drop in exports in February and soft manufacturing reports, have raised concerns that China may struggle to meet its growth target this year of around 7.5 per cent.

Rising debt worries following the country's first domestic bond default and the looming bankruptcy of a Chinese developer, have added to market jitters.

Some traders suggested the decline in the currency may reflect the central bank's desire to offer a sluggish economy some help by effectively easing monetary conditions.

However, not all traders subscribed to that view. Others said the decline reflected genuine trade to reduce long positions in the currency.

They pointed to the fact that just two days into the 2 per cent band regime, the market had already moved the currency by the equivalent of the previous band's 1 per cent limit.

When the band was last widened in 2012 - to 1 per cent from 0.5 per cent - it took the market two weeks to build up the courage to test even the previous band's width given how closely the central bank controls the market.

Register here to get free digital access to The Straits Times until Aug 9, 2015.
Comments