China's yuan on Monday posted its biggest one-day fall against the dollar since its peg to the US currency was abolished in July 2005, amid signs that Chinese forex policy was shifting towards slower yuan appreciation.
A few dollar orders in thin turnover during the final 15 minutes of trade pushed the yuan down to a close of 6.8410, a drop of 0.32 percent from Friday's finish of 6.8189. The yuan hit an intra-day low of 6.8528. The Chinese currency also fell sharply in the offshore non-deliverable forwards market after China's Politburo, in a statement late on Friday following a meeting on the economy, said the country faced increasing difficulties in sustaining growth.
The statement marked a departure from the government's hawkish tone earlier this year, when it emphasised the need to keep the economy from overheating. Analysts said authorities appeared to be shifting economic policy slightly towards sustaining growth from fighting inflation, and one result of this was likely to be slower appreciation of the yuan, which is tightly controlled by the central bank.
Lehman Brothers said in a research note that among the results of the Politburo meeting, the "RMB appreciation pace will likely be slower, and there will likely be more two-way fluctuation" in the second half of this year. "It appears an increasing part of the government is now worrying about an economic slowdown," said a dealer at a major Chinese state-owned bank in Beijing.
"This is likely to eventually lead to a currency policy change towards the end of this year, which will largely end the yuan's one-way appreciation seen since its revaluation" in 2005. One immediate reason for the yuan's tumble on Monday was slower inflows of funds after capital controls were tightened in mid-July to curb inflows of speculative money, traders said.
The foreign exchange regulator began requiring exporters to park their revenues in verification accounts so that officials could check whether invoices were backed by genuine trade transactions. Dealers said authorities had been organising training sessions for exporters and financial institutions on how to implement the rules.
"Such sessions have affected corporate business and reduced trading turnover on the foreign exchange market," said a dealer at a US bank in Shanghai. "In thin trade, dollar demand from a few banks exaggerated the exchange rate's movement," he said, adding that he did not believe the yuan was starting a downtrend.
Comments
Comments are closed.