Offshore Yuan Drops Most in Two Weeks as Zhou Rules Out Support

The offshore yuan fell the most in two weeks after China’s central bank governor ruled out the need for any major measures to boost growth even as data released over the weekend pointed to a slowing economy.

The currency has returned to a more “normal, rational and fundamentals-driven” trend, Zhou Xiaochuan told reporters on Saturday, adding that excessive monetary stimulus isn’t necessary to achieve the nation’s expansion target of at least 6.5 percent over the next five years. The dollar’s 14-day relative-strength index against the offshore yuan neared a level on Friday that indicates to some traders that the greenback will strengthen.

The Chinese currency traded in Hong Kong retreated 0.13 percent, the most since Feb. 26, to 6.4903 a dollar as of 10:19 a.m. local time, prices compiled by Bloomberg show. It rose 0.35 percent on Friday to the strongest level since early December. The yuan in Shanghai fell 0.02 percent to 6.4946. The People’s Bank of China kept its daily fixing, which restricts onshore moves to 2 percent on either side, little changed at 6.4913.

“The yuan’s gain on Friday was quite sharp and it’s going through some adjustments now," said Kenix Lai, a foreign-Exchange analyst at Bank of East Asia Ltd. in Hong Kong. "The market was also disappointed by Zhou’s comments as investors were expecting more interest-rate and bank reserve-requirement-ratio cuts to shore up growth because economic fundamentals are quite weak."

Data Miss

The nation’s industrial output climbed 5.4 percent from a year earlier in January and February, the National Bureau of Statistics said Saturday, compared with the 5.6 percent median estimate of economists surveyed by Bloomberg. Retail sales climbed 10.2 percent from a year earlier, missing the 11 percent projected gain, while fixed-asset investment exceeded estimates with a 10.2 percent increase.

The CFETS RMB Index dropped to the lowest level since the gauge was unveiled in December as of Friday, according to data released Monday. This suggests that the yuan is weakening against the basket.

The Yield on government bonds due January 2026 declined one basis point to 2.85 percent, the lowest in three weeks, data from the National Interbank Funding Center show. The seven-day repurchase rate, a gauge of interbank funding availability, fell two basis points to 2.26 percent, according to a weighted average from the National Interbank Funding Center.

--With assistance from Helen Sun To contact Bloomberg News staff for this story: Tian Chen in Beijing at tchen259@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Robin Ganguly, Phani Varahabhotla

By: Bloomberg News

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