The offshore yuan traded near a three-week low after China’s central bank lowered its reference rate following a surge in the dollar.
The People’s Bank of China cut its fixing, which limits onshore moves to 2 percent on either side, after the Bloomberg Dollar Spot Index advanced the most since November last week as Federal Reserve officials voiced support for higher interest rates. China’s economy is showing early signs of stabilization, reducing the need for further cuts in borrowing costs, China International Capital Corp. economists wrote in a March 27 note.
The offshore yuan dropped 0.02 percent to 6.5271 a dollar as of 11:06 a.m. in Hong Kong, trading near the weakest level in three weeks, prices compiled by Bloomberg show. The currency in Shanghai declined 0.02 percent to 6.5163, according to China Foreign Exchange Trade System prices. The CFETS RMB Index, which China uses to measure the yuan’s performance against 13 currencies, was at 98.16 as of Friday, according to official data released Monday.
“The dollar strength is the main reason for the yuan weakness,” said Wan Zhao, a Shanghai-based analyst at China Merchants Bank Co. “Meanwhile, with some of the data showing green shoots, as the impact of previous fiscal and monetary stimulus kicks in, the economy will probably be able to stabilize, which in turn will underpin the yuan.”
Industrial profits broke a seven-month losing run to climb 4.8 percent from a year earlier in the January-February period, the National Bureau of Statistics said on Sunday. Oil processing, electrical machinery and food companies spearheaded the recovery, with 28 of 41 industry groups posting higher incomes. The optimism was tempered by increasing debt and growing inventories, and by the statistics bureau flagging a low base effect.
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Increasing the yuan’s flexibility now against the basket of currencies would be wise as the dollar is showing weakness and depreciation pressure on China’s currency is easing, Chinese Academy of Social Sciences researcher Zhang Ming wrote in an article in Caixin.com on March 26.
In the money markets, the seven-day repurchase rate, a gauge of interbank funding availability, was little changed at 2.30 percent, according to National Interbank Funding Center prices. The yield on government notes due January 2026 rose four basis points to 2.88 percent.
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