Yuan's Longest Drop Since 2015 Hangs in Balance After Strong Fix
China’s yuan inched lower even after the central bank set the daily fixing stronger than expected.
(Bloomberg) -- China’s yuan inched lower even after the central bank set the daily fixing stronger than expected.
The yuan slipped 0.03% to 7.1648 a dollar as of 5:38 p.m. in Shanghai. The currency entered the day having fallen in the previous nine sessions, the longest slump since December 2015. The People’s Bank of China earlier set its reference rate at 7.0835, compared with the 7.1126 average forecast by traders and analysts in a Bloomberg survey.
The Chinese currency has plummeted 3.9% in August, set for the biggest monthly drop on record, as the escalating trade war with the U.S. and a slowing economy damaged investor confidence. The fixing has been set stronger than expected for six straight days, a sign the PBOC is leaning more on the so-called counter-cyclical factor when it sets the rate.
“It’s clear as day the PBOC are beefing up the counter-cyclical measure to avoid at all cost any negative fallout” from the trade dispute, said Stephen Innes, managing director at VM Markets Ltd. in Singapore. “It’s also clear that they are not willing to let the yuan depreciate too fast, which is mildly supportive for risk assets. A rapidly depreciating yuan could trigger a wave of capital outflows.”
In a sign that investors are growing increasingly bearish despite the PBOC’s efforts to sooth nerves, the onshore yuan has closed weaker than the fixing on all but one day this month. The currency isn’t only tumbling against the dollar, as a basket measuring the yuan’s performance against 24 exchange rates slipped to a new record low on Wednesday.
Analysts are rushing to cut forecasts for the yuan this week, with Goldman Sachs Group Inc. predicting a drop to 7.2 in three months and Bank of America Merrill Lynch foreseeing a decline to 7.5 by year-end.
Here’s a look at the banks’ forecasts:
Firm | Time Frame | Forecast | |
---|---|---|---|
China Merchants Bank | End 2019 | 7.15 | |
Goldman Sachs | 3 months | 7.2 | |
UBS | End 2019 | 7.2 | |
ANZ | End 2019 | 7.2 | |
Capital Economics | End 2019 | 7.3 | |
JPMorgan | End 2019 | 7.35 | |
Bank of America Merrill Lynch | End 2019 | 7.5 | |
Societe Generale | 4Q 2019 | 7.25 | |
Daiwa | End 2019 | 7.6 |
--With assistance from Qizi Sun and Ran Li.
To contact the reporters on this story: Tian Chen in Hong Kong at tchen259@bloomberg.net;Livia Yap in Singapore at lyap14@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann, Richard Frost
©2019 Bloomberg L.P.