China's yuan weakened to near its lowest in 8 1/2 years on Monday, weighed down by the dollar's continuing strength as overseas investors bet the Trump administration will implement expansionary fiscal policies. The official midpoint guided by the People's Bank of China (PBOC) was set weaker for a 12th consecutive day at 6.8985 per dollar prior to market open on Monday, compared with the previous fix 6.8796.
Khoon Goh, head of Asia research at ANZ Bank, wrote in a note last week the yuan would end the year at 6.90 and hit 7.10 by the end of 2017. The spot market opened at 6.8945 per dollar and was changing hands at 6.8970 at midday, 90 pips weaker than the previous late session close and 0.02 percent firmer than the midpoint.
The offshore yuan was trading 0.28 percent weaker than the onshore spot at 6.9167 per dollar. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.1, 2.84 percent softer than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate. Some market watchers were concerned about whether the central bank would prop up the Chinese currency at current levels. "Whether China will continue to defend 6.9 amid dollar strength will be the key focus of this week," Tommy Xie, an economist at OCBC Bank in Singapore wrote in a note on Monday. Chinese policymakers have been unfazed by the yuan's recent slide, but are ready to slow its descent for fear of fanning capital flight if the currency falls too quickly through the psychologically important 7-per-dollar level, policy advisers said.