(Bloomberg) -- The yuan fell against a basket of currencies for a third day, prompting speculation the central bank is returning to a strategy of stability against a declining dollar and weakness against the exchange rates of its trading partners.
The greenback retreated last week as expectations for a U.S. rate increase this year all but vanished after Britain voted to leave the European Union. Data released in the past week showed a slowdown in manufacturing and industrial profits in June, while figures due next week are forecast to indicate a third monthly drop in exports.
"The market is still concerned about the Chinese economy," said Gao Qi, a foreign-exchange strategist at Scotiabank in Singapore. "When most currencies are rising against the U.S. dollar, usually the yuan will appreciate less, so the yuan will fall versus the basket."
A Bloomberg replica of a 13-currency index tracked by the People's Bank of China dropped 0.2 percent to 94.71, the lowest since at least October 2014. The onshore yuan fell 0.05 percent to 6.6655 per dollar as of 5:23 p.m. in Shanghai, while the offshore yuan was little changed at 6.6790 in Hong Kong. The PBOC strengthened the yuan's daily fixing by 0.04 percent to 6.6472.
While the yuan is likely to fall further versus the basket, the chance of a sharp depreciation is low and the central bank is expected to step in if needed to manage market expectations, Gao wrote in a note. The PBOC intervened via banks last week to prop up the offshore yuan, according to people with knowledge of the matter. The monetary authority later issued a denial.
The yuan index has dropped 6.2 percent this year as the dollar's slump allowed the PBOC to maintain a steady dollar-yuan rate to prevent destabilizing outflows while engineering trade-weighted depreciation to boost exports. Continued weakness in the basket may lead to one-way depreciation expectations, according to Zhou Hao, an economist at Commerzbank AG in Singapore.
Cross-border yuan flows in recent months could have masked the true extent of outflow pressures, Goldman Sachs Group Inc. economists led by MK Tang wrote in a note. Including such flows would put underlying outflows in May at $26 billion, instead of the $2 billion shown in onshore foreign-currency settlement data, the analysts said.
To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net. To contact the editors responsible for this story: Robin Ganguly at rganguly1@bloomberg.net, Allen Wan
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