Bloomberg News

Yuan Set for Weekly Decline on Europe, China Growth Concerns

May 10, 2012

The yuan was headed for its biggest weekly loss in almost two months on concern political shifts in Europe will reignite the region’s debt crisis, dimming the outlook for Chinese exports.

Overseas sales climbed 4.9 percent from a year earlier in April, last month, less than the 8.5 percent growth forecast in a Bloomberg survey of economists, data showed yesterday. Consumer-price gains moderated to 3.4 percent from 3.6 percent in March, according to figures released today. Greece’s political leaders enter a fifth day of talks to form a government following a May 6 election. French Socialist Francois Hollande, who has called for austerity measures to be delayed, was elected president.

“The weak data cast doubts on the strength of China’s domestic consumption,” said Banny Lam, Hong Kong-based economist at CCB International Securities Ltd., a unit of China’s second-largest bank. “The political uncertainty in Europe is also unfavorable for China.” Lam predicts the yuan will trade at around 6.3 per dollar this quarter and resume appreciation in the second half of the year.

The yuan fell 0.18 percent this week and 0.05 percent today to 6.3173 per dollar as of 10:20 a.m. in Shanghai, according to the China Foreign Exchange Trade System. That’s the biggest weekly drop since the five days ended March 16. The currency’s one-month implied volatility, a measure of exchange-rate swings used to price options, declined 15 basis points, or 0.15 percentage point, this week to 1.85 percent.

The People’s Bank of China lowered the currency’s reference rate by 0.02 percent today to 6.2952 per dollar, the weakest level since April 24. The yuan is allowed to trade as much as 1 percent on either side of the fixing.

In Hong Kong’s offshore market, the yuan dropped 0.19 percent this week to 6.3163. Twelve-month non-deliverable forwards declined 0.06 percent today to 6.3600, extending the week’s loss to 0.24 percent. The contracts traded at a 0.7 percent discount to the onshore spot rate, according to data compiled by Bloomberg.

Growth in China’s industrial output quickened to 12.2 percent last month from 11.9 percent in March, a survey showed before the figures are released today.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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