The yuan extended losses for a fourth session against the dollar on Tuesday, touching a fresh 5-1/2-year low and raising concerns the central bank is letting the Chinese currency slide further. "Our clients are getting edgy given the yuan has hit multi-year lows repeatedly," said a trader at a European bank in Shanghai. "So there was quite a bit of heavy dollar buying in the morning." "No one knows how long this bout of depreciation will last."
The People's Bank of China set the midpoint rate at 6.6594 per dollar prior to market open, 0.18 percent weaker than the previous fix of 6.6472. Tuesday's fixing was the softest since December 2010. Spot yuan opened at 6.6646 per dollar and was changing hands at 6.6693 at midday, easing 0.06 percent from the previous close. "Overall the market remains relatively calm," said a trader at a Chinese commercial bank in Shanghai. "Constant window guidance told us not to encourage clients to buy dollars." Window guidance is a form of administrative instruction the central bank uses to send signals to banks.
The central bank had said on Monday that it would use various policy tools to maintain appropriate liquidity and reasonable growth in credit and social financing. China is expected to report later this week June foreign exchange reserve data, which traders will be scouring for any suggestions of a resurgence in speculative capital outflows following the yuan's recent declines. Forex reserves fell by $27.9 billion in May to $3.19 trillion, their lowest since December 2011, likely due to the effects of a stronger dollar and sporadic official intervention. The offshore yuan was trading 0.17 percent softer than the onshore spot at 6.6805 per dollar.