The Chinese currency yuan Wednesday fell to a 6-year low against the dollar after joining the International Monetary Fund’s reserves basket on Oct.1.
The People’s Bank of China set the daily midpoint for the yuan at 6.7258 per dollar, a 0.24 percent down from Tuesday’s midpoint. The bank only allows the yuan onshore to swing 2 percent around the fixing rate each day. It is the weakest level since September 2010. The offshore yuan fell 0.04 percent to 6.7201 a dollar in Hong Kong, taking its eight-day loss to 0.7 percent.
“Predictably, with the yuan’s formal inclusion in the Special Drawing Rights out of the way, China has allowed a drop past 6.7,” said Sue Trinh, Royal Bank of Canada’s Hong Kong-based head of Asian foreign-exchange strategy. “This is no surprise. Having kept a floor under the yuan for weeks in the lead up to Oct. 1, the yuan has a lot of catching up to do on the downside.”
The longest losing streak in two years came after the Chinese currency joined the International Monetary Fund’s reserves basket on Oct.1. Investors said the Chinese Central Bank intervened in the FX market to keep the yuan stable before the currency’s inclusion in the IMF basket. The yuan rose 0.1% against the dollar in September. China’s foreign-exchange reserves is another indicator of The PBOC’s intervention. China’s foreign-exchange reserve shrank to $3.17 trillion last month, the lowest since 2011, showing that the central bank was selling dollars to support the yuan before the currency joined the SDR.
“The PBOC is allowing market forces to play a bigger role, but if you compare the fixing with where it’s supposed to be, it’s still slightly stronger,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “I don’t think the PBOC will completely step away from the market. It still wants stability. It’s an art of balancing between stability and letting market forces play a bigger role.”