China’s yuan eased against the dollar on Tuesday, guided by the central bank’s weaker midpoint setting one day after the currency’s jump.
The People’s Bank of China set the midpoint rate at 6.513 per dollar prior to market open, 0.02 per cent softer than Monday’s fix of 6.5118.
The spot market opened at 6.5060 per dollar and was changing hands at 6.5127 at midday, weakening 0.29 per cent from the previous close. On Monday, the yuan had strengthened 1.2 per cent against the dollar.
“We have seen increased volatility in the yuan’s value against the dollar since late December,’’ said a dealer at an European bank. ‘
“The central bank indeed intervened yesterday but overall, increased volatility is in line with the government’s intention to reform the currency mechanisms.’’
Yuan exchange rate index
In December, Beijing had launched an index on the yuan’s exchange rate weighted against a basket of trade-related currencies, a move that will eventually loosen the currency’s link to the greenback and plays down the impact of the yuan’s depreciation against the dollar.
While the yuan has steadied in recent weeks, traders noted it is largely due to a broadly weaker dollar and heavy direct and indirect intervention by the central bank, which sold a large amount of foreign exchange in recent months to shore up the currency.
Concerns about China’s slowing economy, declining foreign exchange reserves and capital outflows are likely to keep pressure on the yuan and sustain fears of an eventual large devaluation.
Yuan loan data
China is quietly taking steps to support its slowing economic growth, as indicated by unexpected strong new yuan loan data issued on Tuesday.
Chinese banks extended a record 2.51 trillion yuan ($385.40 billion) of new loans in January, well above expectations, while growth in money supply quickened to a 19-month high, suggesting Beijing is keeping monetary policy loose to counter a prolonged economic slowdown.
“I don't believe the surge in loans will have much impact on the yuan,’’ said a trader at an Asian bank.
“Besides, January, right before the Spring Festival, has always been a month when banks extend more new loans.’’
The offshore yuan was trading 0.04 per cent weaker than the onshore spot at 6.5155 per dollar by midday. The yuan remained flat against the euro at 7.2716. It strengthened 0.4 per cent against the Japanese yen , hovering at 5.6788 to 100 yen.