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China Sets Weaker Yuan Fix in First Sign Record Rally May Slow

By Administrator_India

Capital Sands

China set its daily yuan fixing at a weaker-than-expected level, the first signal that policy makers may want to rein in this quarter’s rapid appreciation in the currency.

The People’s Bank of China’s reference rate was set at 6.7872 on Tuesday, after the spot rate weakened 0.51% overnight. That’s almost 60 basis points weaker than the average estimate in a Bloomberg survey, the largest gap on the weak side in about two months.

Still, the currency strengthened 0.22% to 6.7897 per dollar as of 9:35 a.m. in Shanghai.

“The market is growing increasingly concerned that the PBOC will guide the yuan weaker due to the rapid rally in the currency recently,” said Tommy Xie, an economist at Oversea Chinese Banking Corp. “We need to see a few more days’ fixings to see if the central bank can no longer tolerate the advance. Right now, investors still like to long the yuan given the strong fundamentals.”

The yuan was on track for its biggest ever quarterly gain in Bloomberg data going back to 1981, before a rebound in the greenback triggered a three-day slide in the Chinese currency. While a slump in the dollar has helped, Chinese media has attributed the gains to the nation’s economic recovery. It’s still up 4.1% since the end of June.

The PBOC had also helped by not standing in its way, which for some in the market was an incentive for the currency to push higher. The fixing limits the yuan’s move to 2% in either direction.