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Yuan's Longest Drop Since 2015 Hangs in Balance After Strong Fix

China’s yuan inched lower even after the central bank set the daily fixing stronger than expected.

Yuan's Longest Drop Since 2015 Hangs in Balance After Strong Fix
A man holds wooden chopsticks above a plate of Chinese one-hundred yuan banknotes on a black background in this arranged photograph in Hong Kong, China. (Photographer: Paul Yeung/Bloomberg)

(Bloomberg) -- China’s yuan inched lower even after the central bank set the daily fixing stronger than expected.

The yuan slipped 0.03% to 7.1648 a dollar as of 5:38 p.m. in Shanghai. The currency entered the day having fallen in the previous nine sessions, the longest slump since December 2015. The People’s Bank of China earlier set its reference rate at 7.0835, compared with the 7.1126 average forecast by traders and analysts in a Bloomberg survey.

Yuan's Longest Drop Since 2015 Hangs in Balance After Strong Fix

The Chinese currency has plummeted 3.9% in August, set for the biggest monthly drop on record, as the escalating trade war with the U.S. and a slowing economy damaged investor confidence. The fixing has been set stronger than expected for six straight days, a sign the PBOC is leaning more on the so-called counter-cyclical factor when it sets the rate.

“It’s clear as day the PBOC are beefing up the counter-cyclical measure to avoid at all cost any negative fallout” from the trade dispute, said Stephen Innes, managing director at VM Markets Ltd. in Singapore. “It’s also clear that they are not willing to let the yuan depreciate too fast, which is mildly supportive for risk assets. A rapidly depreciating yuan could trigger a wave of capital outflows.”

In a sign that investors are growing increasingly bearish despite the PBOC’s efforts to sooth nerves, the onshore yuan has closed weaker than the fixing on all but one day this month. The currency isn’t only tumbling against the dollar, as a basket measuring the yuan’s performance against 24 exchange rates slipped to a new record low on Wednesday.

Yuan's Longest Drop Since 2015 Hangs in Balance After Strong Fix

Analysts are rushing to cut forecasts for the yuan this week, with Goldman Sachs Group Inc. predicting a drop to 7.2 in three months and Bank of America Merrill Lynch foreseeing a decline to 7.5 by year-end.

Here’s a look at the banks’ forecasts:

FirmTime FrameForecast
China Merchants BankEnd 20197.15
Goldman Sachs3 months7.2
UBSEnd 20197.2
ANZEnd 20197.2
Capital EconomicsEnd 20197.3
JPMorganEnd 20197.35
Bank of America Merrill LynchEnd 20197.5
Societe Generale4Q 20197.25
DaiwaEnd 20197.6

--With assistance from Qizi Sun and Ran Li.

To contact the reporters on this story: Tian Chen in Hong Kong at tchen259@bloomberg.net;Livia Yap in Singapore at lyap14@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann, Richard Frost

©2019 Bloomberg L.P.