China’s Yuan Drops and Seen Going Lower

March 23, 2016, 6:43 AM UTC
Picture taken 13 October 2007, shows a C
Picture taken 13 October 2007, shows a Chinese artist using Chinese yuan notes to creates a model of Beijing's Central Business District (CBD). China and the United States warned each other Wednesday that their booming but tense trade relationship was under threat from protectionism, as they began two days of top-level economic talks. AFP PHOTO/TEH ENG KOON (Photo credit should read TEH ENG KOON/AFP/Getty Images)
Photograph by Teh Eng Koon — AFP/Getty Images

China’s yuan eased against the dollar on Wednesday, despite a firmer midpoint setting by the central bank.

The People’s Bank of China set the midpoint rate at 6.4936 per dollar prior to the market open, 0.05% firmer than the previous fix of 6.4971. In the spot market, the yuan opened at 6.4847 per dollar and was changing hands at 6.4901 at midday, easing only 0.03% from the previous close.

“During the past three days of trade, the yuan was trading a bit stronger than the midpoint, with state banks offering prices around the official fix, offsetting any surge in dollar demand,” said a dealer at a Chinese commercial bank in Shanghai.

While officials have said recently that two-way fluctuations in the currency will be allowed “within a reasonable range,” and as determined by market demand, traders remain cautious.

Still, onshore one-year yuan/dollar deliverable forwards were quoted at 6.5812 around midday, implying expectations of a bigger depreciation over 12 months than seen in Tuesday’s close of 6.5686.

An official at the country’s foreign exchange regulator said on Tuesday that China is studying a Tobin tax on transactions as a possible policy tool to curb capital outflows, even though such flows have eased in recent months.


Offshore one-year non-deliverable forwards contracts , considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.6675, 2.61% weaker from the midpoint.

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