HONG KONG, Dec 18: China’s yuan slumped to a five-month low against the dollar on Thursday after the central bank set a weaker daily midpoint fix, prompting investors to cut exposure to the local currency. While emerging market currencies have been under pressure in recent days thanks to a rapid drop in oil prices and a financial crisis in Russia, China’s yuan has been broadly steady as Bejing has steadfastly maintained a stronger fixing trend.
That series of strong fixings was broken conclusively on Thursday as the People’s Bank of China (PBOC) fixed the official midpoint at 6.1195 per dollar, sharply weaker than Wednesday’s 6.1137.
The weak fixing sparked a selloff as investors bet the yuan is likely to remain under pressure in the coming days in sympathy with the broader emerging market currency complex.
Recent volatility in the mainland markets along with a rise in broad risk aversion, search for safety and falling market liquidity towards the year-end have exacerbated market moves.
HSBC strategists said in a note to clients that they see a risk of further emerging market weakness. In a sign that Beijing remains confident about yuan’s outlook, China’s regulators said it will push forward with reforms to allow for full capital account convertibility. On Thursday, spot yuan weakened quickly to 6.2187 per dollar, 0.34 percent weaker than Wednesday’s close of 6.1975 and comfortably settling above the 23.6 percent retracement line of the 2014 year high to low trading range. (AGENCIES)
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