What’s new: China’s central bank weakened the yuan’s daily reference rate for a seventh straight trading day, signaling that policymakers are letting the currency decline slowly against the dollar as part of measures to support China’s economy.
The Chinese currency’s central parity was set at 7.1270 against the U.S. dollar on Thursday, compared with 7.1248 the previous day, according to data from the China Foreign Exchange Trade System (CFETS). The fixing was the weakest since Nov. 21.
The yuan is allowed to trade as much as 2% higher or lower than the daily fixing on the onshore spot market.
The background: The yuan’s daily fixing is one of the tools used by the People’s Bank of China (PBOC) to maintain exchange rate stability and prevent any sudden depreciation that could destabilize markets and trigger capital outflows.
The Chinese currency has now fallen to a seven-month low against the dollar and is headed for its sixth straight monthly decline as higher interest rates in the U.S., China’s patchy economic recovery and falling yields on domestic bonds have put downward pressure on the yuan.
Although the PBOC has loosened its control over the yuan in the past few years, it still manages the currency closely. Many analysts say the central bank isn’t fighting the depreciation but is trying to ensure an orderly decline that doesn’t spook the markets.
The official spot closing rate of the onshore yuan, known as the CNY, was 7.2689 on Thursday, according to the CFETS, 23 pips weaker than Wednesday’s and close to the lower limit of the 2% trading band. The offshore yuan, known as the CNH, was trading at around 7.3 to the dollar.
Contact reporter Zhang Yukun (yukunzhang@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)
