The yuan closed weaker against the dollar on Friday, touching a fresh 5-1/2-year low on concerns that the central bank would tolerate a further weakening of the currency to support the slowing economy.
Reuters reported on Thursday that the People’s Bank of China (PBOC) would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016, which would mean the currency matches last year’s record decline of 4.5 per cent, policy sources said.
Later on Thursday, China’s central bank criticised the media, saying some continuously publish “inaccurate information’’ on the yuan foreign exchange rate, which help some “speculative forces” short the yuan.
On Friday, the PBOC refrained from intervening in the market to curb the yuan’s weakening, traders said. The central bank has pledged to let the market have a bigger say in the exchange rate, but has also stressed it wants to keep the currency relatively stable.
Spot yuan officially closed at 6.6582 per dollar, weakening 0.2 per cent from Thursday’s close. It touched an intraday low of 6.6591 in late trade, its weakest level since December 2010 and toppling its previous 5-1/2-year low of 6.6585 hit on Monday.
The spot market officially winds up trading at 4:30 pm Shanghai time (0830 GMT), with the PBOC announcing the close. However, there is an evening session that lasts until 11:30 pm.
“There were no signs that the PBOC was intervening in trading to support the yuan even when it was hitting multi-year lows," said a senior trader at a European bank in Shanghai.
“The central bank apparently is encouraging two-way volatility of the yuan.”
Prior to the market’s open, the PBOC set the midpoint rate at 6.6496 per dollar, 0.28 per cent weaker than the previous fix of 6.6312.
“This year, market expectations are always tilting towards depreciation,” said a trader at another European bank in Shanghai.
In the three months that ended on Thursday, the yuan tumbled 3.1 percent against the dollar, the biggest quarterly depreciation since China established the domestic foreign exchange market in 1994.
On Friday, the offshore yuan stayed steady at 6.6703 around 4:30 pm, representing a discount of 0.2 per cent to the onshore yuan. The offshore market is leading in forecasting the yuan’s depreciation so far this year.