China's yuan closed at 6.2040 against the dollar on Wednesday, ending 2014 with its first significant annual loss since the currency's landmark revaluation in 2005. The yuan is under pressure from the greenback's strength in global markets and lingering weakness of emerging market currencies, traders said. The Chinese currency lost over 2.4 percent for the year compared with a gain of 2.8 percent in 2013. It dipped fractionally in 2009.
The People's Bank of China (PBOC) fixed the official midpoint at 6.1190 per dollar on Wednesday, 0.06 percent stronger than the previous day's fix. But the fixing did not prevent spot yuan weakening from Tuesday's 6.2020 level amid weakening sentiment towards the currency, traders said.
Still, traders said the new rules on the management of banks' foreign currency net opening positions (NOP) released by the State Administration of Foreign Exchange (SAFE) on Tuesday might support the yuan slightly in the longer run. China will relax restrictions on banks' yuan trading from January 1, replacing daily caps on banks' foreign exchange positions with weekly limits, giving them leeway to short dollars within that period.
"The fact that some banks will be exempted from being forced to keep minimum long dollar positions may alleviate pressure on RMB depreciation. As such, we think the upside for USD/CNY will be capped in the near term," said Xie Dongming, an economist at OCBC Bank in Singapore. The Chinese currency fell sharply in the first four months of this year in what was widely seen as an engineered move by the central bank to crack down on speculators betting on one-way appreciation.
It regained some ground from May to October buoyed by China's strong trade surplus, but tumbled again in particular after the central bank surprised markets and cut the benchmark interest rate in late November to shore up the slowing economy. Further policy easing is expected in coming months, which will keep downward pressure on the yuan, traders said.
A series of weak economic indicators have added to bearish sentiment toward the currency. Activity in China's factory sector shrank for the first time in seven months in December, a private survey showed on Wednesday. The final HSBC/Markit Purchasing Managers' Index (PMI) for December came in at 49.6, just below the 50.0 level that separates growth from contraction.
In the year, China has taken a slew of steps towards reforming its foreign exchange mechanisms, including doubling the yuan/dollar trading band to 2 percent in either direction in March and freeing retail yuan exchange rate in June. In the latest liberalisation step announced on Wednesday, China said that it would no longer require local firms which go public abroad to get approval to remit foreign exchange raised in listings back home.
Comments
Comments are closed.