Offshore yuan falls most since August as PBOC seen allowing drop

A bank employee counts 100-yuan banknotes at a bank in Hangzhou.
A bank employee counts 100-yuan banknotes at a bank in Hangzhou.PHOTO: AFP

BEIJING (BLOOMBERG) - The offshore yuan declined the most since August on Monday (Jan 4) after data showed China manufacturing contracted for a fifth straight month, spurring speculation its central bank will guide the currency lower to help the economy.

The spot rate in Hong Kong's free market fell 0.5 per cent to 6.6026 per US dollar as of 10:11 am local time, according to data compiled by Bloomberg. The currency in Shanghai, which is allowed to diverge from a central bank fixing by a maximum 2 per cent, retreated 0.24 per cent to 6.5095, according to China Foreign Exchange Trade System prices. That's the lowest since May 2011.

"The trend for the yuan to weaken is continuing in the new year as the People's Bank of China weakens the currency's fixing," said Eddie Cheung, a Hong Kong-based currency strategist at Standard Chartered. "The currency will drop further in the first quarter as China makes the exchange rate more market-driven."

The PBOC cut its reference rate for the yuan by 0.15 per cent to 6.5032 a dollar on Monday, the weakest since May 2011. The monetary authority has reduced the reference rate by 0.49 percent in the past five sessions.

China's official purchasing managers index was at 49.7 last month, below the 50 level that separates contraction and expansion, compared with the median estimate of 49.8 in a Bloomberg survey of economists. The survey-based Caixin China Manufacturing PMI index released Monday also indicated deterioration, coming in at 48.2.

The nation's policy will lean toward "a loosening bias" in 2016, as more supportive measures could provide a buffer to slower growth, Goldman Sachs economists led by Maggie Wei wrote in a note. The onshore yuan's trading hours will be extended to 11:30 pm from Monday, while the currency's exchange rate at 4:30 pm will still be used as the closing price.