China’s yuan fell to the lowest level since September as the central bank weakened the currency’s reference rate for a third day amid concern economic growth will moderate further on Europe’s debt crisis.
The International Monetary Fund said China’s slowing economy faces significant downside risks and repeated an assessment that the yuan is “moderately” undervalued. The Dollar Index (DXY), which tracks the greenback against six major currencies, climbed for a fourth day after estimates by Markit Economics yesterday showed that euro-area services and manufacturing contracted for a sixth month. The People’s Bank of China set the yuan’s fixing at the weakest since Nov. 30.
“Some funds are leaving China for the dollar as investors turn risk-averse,” said Patrick Cheng, a foreign-exchange analyst at Haitong International Securities Co. in Hong Kong. “Slower growth in China and worsening European debt problems are going to exacerbate capital outflows in emerging markets.”
The yuan dropped 0.04 percent to close at 6.3885 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency fell as much as 0.17 percent to 6.3967 earlier, the weakest level since Sept. 29. One-month implied volatility, a measure of exchange-rate swings used to price options, climbed 15 basis points, or 0.15 percentage point, to 1.5 percent. That’s the biggest one-day increase since May 31.
The Chinese central bank lowered the yuan’s reference rate by 0.14 percent to 6.3429 per dollar. Nigeria’s foreign reserves held in the yuan rose fivefold in the first quarter to the equivalent of $503.5 million from the previous three months, the Abuja-based central bank said yesterday.
In Hong Kong’s offshore market, the yuan fell 0.05 percent to 6.3905 per dollar. It traded at 6.3953 earlier, the lowest since Dec. 16. Twelve-month non-deliverable forwards weakened 0.08 percent to 6.4350 per dollar, a 0.72 percent discount to the spot rate in Shanghai, according to data compiled by Bloomberg.
In a bid to defend its position as the global hub for international trade and finance in the Chinese currency, Hong Hong today allowed non-residents to purchase an unlimited amount of yuan. While conversion at the offshore rate will start Aug. 1, buyers will need to seek permission to send the currency into China, Hong Kong Monetary Authority Deputy Chief Executive Eddie Yue said at a conference in the city.
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