China’s yuan weakened against the dollar on Tuesday after the central bank set the midpoint at its lowest level in more than four years for the second day, and traders anticipated the currency will fall further.
“The yuan was trading narrowly intraday, as the authorities appeared to want to control the pace of its depreciation,” said a dealer at a foreign bank in Shanghai.
The yuan has edged down around 100 pips at the open every day in the past week, but then some state-owned banks would start to offer dollars, she added, leading to the currency to move within a narrow range intraday.
The People’s Bank of China (PBOC) set its official midpoint rate at 6.4559 per dollar prior to the market open on Tuesday, its weakest level since July 2011, and 0.1 percent weaker than the previous fix of 6.4495. It has weakened for seven consecutive sessions.
In the spot market, the yuan opened at 6.4640 per dollar and hit 6.4691 in early trade, the weakest intraday level since mid-July 2011. By midday it was changing hands at 6.4667, 0.08 percent weaker than the previous close.
The PBOC said on Friday that it had begun publishing a yuan exchange rate weighted against a basket of currencies, a move that will eventually loosen the Chinese currency’s link to the greenback and will let the yuan weaken further.
This yuan index covers 13 currencies, with the dollar given a weighting of 26.4 percent, the euro 21.39 percent and the Japanese yen 14.68 percent.
On Tuesday, the yuan was trading against the euro at 7.1148, weaker than the previous close of 7.0806, and was nearly flat against the yen at 5.3397. Offshore, the yuan was trading 1.30 percent weaker than the onshore spot at 6.5491 per dollar.
Chinese leaders, meeting ahead of an agenda-setting conference, pledged on Monday to keep the country’s economic growth in a “reasonable range” in 2016 by expanding domestic demand and making supply-side improvements. Beijing has been struggling to reach its economic growth target of around 7 percent this year, despite a raft of policy easing steps in recent months.