ET:Yuan falls against dollar, may test its 2012 low
SHANGHAI: The yuan fell against the dollar on Monday after China's central bank set a slightly weaker midpoint to reflect last week's rally in the dollar index, and the currency could soon test its 2012 low, traders said.
Sentiment towards the yuan's future value versus the dollar was poor amid signs that the world's second-largest economy is slowing down more rapidly than forecast this year and as the greenback strengthens in global markets.
China's consumer and producer prices eased more than expected in June, the latest official data showed on Monday, signalling falling demand for goods and the likelihood of more growth-supporting policy moves from Beijing.
Annual consumer inflation cooled to a 29-month low of 2.2 per cent in June versus May's 3.0 per cent, data from the National Bureau of Statistics showed, with a month-on-month CPI fall of 0.6 per cent, twice the rate of decline expected.
Globally, the euro steadied after dropping to a two-year low against the dollar early on Monday and pushing the dollar index towards a near-two-year high reached in early June.
"A pessimistic atmosphere over the yuan's future value is prevailing for now," said a dealer at a US bank in Shanghai.
"A lack of dollar shorts implies the yuan may have room to fall further," he said. "The yuan may test its 2012 low soon."
Spot yuan was trading at 6.3734 per dollar at midday, down from 6.3644 at Friday's close and within an arm's reach of its 2012 low of 6.3827.
Before trading began, the People's Bank of China set the yuan's midpoint at 6.3293, slightly weaker than 6.3249 on Friday, reflecting but lagging far behind a 1.3 per cent rise in the dollar index on Friday. The midpoint is the base rate from which the central bank allows the yuan to rise or fall 1 per cent in a single day.
With the yuan now under pressure to depreciate partly as a result of a significant slowdown in China's economy, the central bank has recently set a series of midpoints stronger than the yuan's trading level, seeking to keep the exchange rate relatively stable.
China's economic growth slowed to a near three-year low of 8.1 per cent in the first quarter, and a Reuters poll showed market players now expect GDP growth to fall to a three-year low of 7.6 per cent in the second quarter.
Second-quarter GDP data will be announced on Friday. Offshore one-year non-deliverable yuan forward contracts changed hands at 6.4170 on Monday afternoon to imply yuan depreciation of 0.68 per cent against the dollar in the next 12 months based on the spot yuan's midday rate.
Offshore spot yuan traded at 6.3720 at midday, roughly in line with the onshore spot level.
