China’s yuan traded near the weakest level in seven months as the central bank lowered its daily reference rate amid speculation it is looking to counter one-way appreciation speculation on the currency.
The People’s Bank of China cut the yuan’s fixing by 0.01 percent to 6.1192 per dollar, the weakest since Dec. 20. The currency in Shanghai slipped 0.01 percent to 6.1270 as of 10:20 a.m., according to China Foreign Exchange Trade System prices. It touched 6.1351 earlier, the weakest since July 30. The spot rate was 0.13 percent lower than the fixing, after the two converged yesterday for the first time since September 2012.
Two-way capital flows will become the “new norm” for China and the exchange rate is likely to be more volatile as U.S. stimulus is pared, the State Administration of Foreign Exchange said in a report yesterday. There is downward pressure on the yuan because the PBOC is looking to implement two-way risks and increase volatility as it curbs capital inflows and prepares for band widening, Credit Agricole CIB said in a note.