China’s yuan slid against the dollar on Tuesday after the central bank guided the currency lower via its daily midpoint and trade data showed the economy remained weak in November.
Traders expect the yuan to possibly weaken to 6.45 per dollar in coming weeks if the central bank does not intervene to support the currency.
“If the central bank continues to stand by in the next two days, we may start to buy more dollars in case the yuan depreciates further,’’ said a trader at a Chinese commercial bank in Shanghai.
The People’s Bank of China (PBOC) set the midpoint rate at 6.4078 per dollar prior to market open, 0.15 per cent weaker than the previous fix 6.3985.
The spot market opened at 6.4130 per dollar and was changing hands at 6.4180 at midday, or 0.15 per cent weaker than its previous close, extending its weakness in early trade and reaching its lowest level since August 26.
PBOC intervention
Still, some analysts expect the PBOC will step in to bolster the Chinese currency.
“We think the (PBOC’s) strategy is to stabilise the spot yuan fixing, intervene in the onshore and offshore markets to maintain onshore and offshore convergence and wait for the economic data to portray a recovering economy,’’ ING wrote in a research report on Tuesday.
Trade data
China’s trade performance remained weak in November, with exports falling for the fifth straight month and imports dropping for the 13th consecutive month, leading to a trade surplus of $54.10 billion for the month.
Offshore yuan was trading at 6.49 per dollar by midday, and hit its lowest level since September 8 at 6.4950 intraday. It was trading 1.11 per cent weaker than the onshore spot rate by midday, the biggest spread between the two markets in the past three months.
Meanwhile, China’s foreign exchange reserves fell $87.2 billion in November to $3.44 trillion, data showed on Monday, the lowest level since February 2013.
Analysts attributed the fall partly to the dollar’s rally in November, which reduced the value of non-dollar reserves, and partly on the PBOC selling dollars to support the yuan.