Bloomberg News

Yuan Poised for First Weekly Decline in Four as Economy Cools

January 08, 2012

Jan. 6 (Bloomberg) -- The yuan is set for its first weekly drop since the five days through Dec. 9 on signs policy makers are limiting gains in the currency to protect exports as Europe’s worsening debt crisis slows global growth.

The People’s Bank of China set the fixing 0.08 percent weaker at 6.3166 per dollar today after Commerce Minister Chen Deming said the government will roll out measures to boost consumption this year. The economy expanded 8.6 percent from a year earlier in the fourth quarter, the least since 2009, according to the median estimate of economists surveyed by Bloomberg before data due this month. Export growth slowed to a two-year low of 13.5 percent in December, a separate poll showed.

“They are buying time to slow yuan appreciation but not to engineer yuan depreciation,” said Nizam Idris, a currency strategist at Macquarie Group Ltd. in Singapore. “We could see a slower pace of yuan appreciation in the months ahead until a soft landing in the Chinese economy is achieved.”

The yuan fell 0.19 percent this week to 6.3066 per dollar as of 10:05 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency, which is allowed to trade 0.5 percent on either side of the daily fixing, dropped 0.08 percent today. The yuan strengthened 4.7 percent last year, the best performance among Asia’s 10 most-traded currencies excluding the yen.

“If China forces the yuan to depreciate in the face of weaker growth, it will trigger massive capital outflows which will destabilize the economy further,” Idris said, adding that he expects the currency to advance to 6 per dollar by year-end.

Premier Wen Jiabao said Jan. 3 that business conditions may be “relatively difficult” this quarter.

In Hong Kong’s offshore market, the yuan strengthened 0.6 percent this week to 6.3068 per dollar. It gained 0.1 percent today. Twelve-month non-deliverable forwards rose 0.7 percent this week to 6.3395, a 0.5 percent discount to the onshore spot rate. The contracts were little changed today.

--Editors: Andrew Janes, Ven Ram

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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