China’s yuan extended losses against the dollar on Wednesday, after the central bank set its guidance rate at its lowest since August 2011, raising concerns about the Chinese currency’s recently weak trend.
The yuan has inched down for the past three days and closed at its weakest level in more than 4 years on Tuesday.
The People’s Bank of China set the midpoint at 6.4140 per dollar prior to market open on Wednesday — its lowest level since early August 2011 and 0.1 per cent weaker than the previous fix of 6.4078.
In line with the weaker midpoint, the spot market opened at 6.4205 per dollar and was changing hands at 6.4243 at midday, 0.11 per cent weaker than the previous close.
“Given that the yuan is depreciating day by day, investors have little interest to build yuan positions,’’ said a trader at a Chinese commercial bank in Shanghai.
“They expect the yuan to edge down the next day, and are waiting for better prices.’’
Trader said the yuan’s move in one direction was not a good sign, making investors cautious and keeping them sidelined.
“The yuan should move up and down so that market is dynamic; Otherwise, who is willing to step in a straight-down market?’’ said a trader at another Chinese commercial bank in Shanghai.
The yuan has been dampened by China’s slowdown, while the dollar is resilient on the prospect of higher US interest rates.
“Widespread declines in prices of tradeable goods pressure the Chinese government to allow the yuan to depreciate substantially more than it has to date, since a weaker yuan would put upward pressure on yuan-denominated prices of tradeable commodities and manufactured products and ease deflationary risks,’’ said Bill Adams, economist at PNC Financial Services Group, in a research report.
China’s consumer inflation picked up slightly in November, data showed on Wednesday, but factories were plagued by persistent producer price deflation in another sign that Beijing’s year-long easing efforts have yet to restore momentum to a fragile economy.
“The yuan has depreciated about 1.3 per cent in the last month to 6.43 today. The yuan’s depreciation seems likely to accelerate in 2016,’’ Adams added.
The offshore yuan was also softer, trading 0.99 per cent weaker than the onshore spot at 6.4883 per dollar.