 "Yuan tumbles, banks cut forecasts")
The yuan plunged to an eight-year low, with banks slashing their forecasts for China’s exchange rate amid concern an imminent Federal Reserve interest-rate increase will accelerate capital outflows.
The currency fell to 6.8729 against the greenback, the weakest level since December 2008 and beyond a Bloomberg survey’s year-end median estimate of 6.8. A gauge of dollar strength posted the biggest four-day rally in seven years following Donald Trump’s surprise win in last week’s presidential election.
The Republican has promised to label China a currency manipulator and slap tariffs on the nation’s exports.
Standard Chartered Plc Wednesday joined at least four other banks in lowering its forecasts for the yuan, predicting a year-end level of 6.9, compared with 6.75 earlier. The odds of Fed tightening this year have shot up to 94 per cent amid speculation the US monetary authority will move to cap inflation as a Trump-led administration steps up spending.
This would reduce the allure of emerging-market assets. “The pressure for the yuan to decline could be stronger next year as Trump’s policies could lead to a dollar rally and amid concerns about China-US trade relations,” said Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc.
“The People’s Bank of China can curb high volatility with stronger fixings and intervention, but it won’t do so unless outflows surge, as such measures could add great pressures to the foreign reserves.”
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A record $44.7 billion left China in September in yuan payments, while the nation’s foreign-exchange stockpile shrank the most since January last month. Chinese officials have taken a series of steps to plug capital control loopholes, such as a potential plan to curb transactions that use the bitcoin digital currency to take funds out of the country. UnionPay late last month limited mainlanders from using its cards to buy insurance in Hong Kong.
HSBC Holdings Plc, UBS Group AG and Australia & New Zealand Banking Group lowered their yuan forecasts on Tuesday, predicting that the currency will end this year at 6.9 per dollar, compared with earlier estimates of 6.8 for the first two lenders and 6.75 for the third. BMI Research, a unit of Fitch Group, downgraded its year-end forecast to 6.85 from 6.8, while Norddeutsche Landesbank said it has revised its view to 7 from 6.8.
The yuan fell 0.2 per cent to 6.8704 per dollar as of 6:18 pm in Shanghai, extending a five-day decline to 1.3 per cent. The Chinese currency traded in Hong Kong’s offshore market weakened as much as 0.17 per cent to a record-low 6.8845.
Chinese authorities may allow quicker currency depreciation before the Fed’s interest-rate decision in December, UBS head of China economic research Wang Tao wrote in a report Tuesday.
“It is unlikely that Chinese authorities will defend any particular level,” said Khoon Goh, Singapore-based head of Asia research at ANZ. “Uncertainty over whether Trump will label China a currency manipulator is weighing on the yuan.”
In the money markets, the PBOC injected a net 55 billion yuan ($8 billion) in open-market operations on Wednesday, adding funds for a fourth consecutive day, data compiled by Bloomberg show.
The 10-year sovereign bond yield rose 4 basis point to 2.9 per cent, according to National Interbank Funding Centre prices. The overnight repurchase rate in Shanghai added 2 basis points to 2.29 per cent, while one-year interest-rate swaps climbed 11 basis points to 2.99 per cent, the highest since April 2015.