Dilok Klaisataporn
The Chinese yuan (USD:CNY) slipped to its lowest level in four months against the U.S. dollar on Friday, as a weaker daily adjustment fueled speculation that authorities would tolerate further depreciation of the currency.
Specifically, the onshore yuan fell to 7.27618 per dollar by mid-afternoon trade in the United States – the lowest level since mid-November. The collapse came after the People’s Bank of China cut its daily fixing rate to the highest since early February.
To manage the Chinese currency, the PBOC sets a reference rate per trading session for the yuan, which can then trade 2% above or below that level throughout the trading day. Politicians try to keep the yuan more or less stable to avoid capital outflows.
With the yuan down 2% over the past three months, authorities’ efforts to implement monetary easing to support the country’s currency do not appear to be working as hoped. Rising expectations of further monetary easing could weigh on the yuan (USD:CNY), Reuters reported, as PBOC officials signaled there is more room to reduce bank reserve requirements.
Of course, the renewed strength of the US dollar (DXY) is another reason for the weakening of the yuan.