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Offshore yuan weakens to record as PBOC seen tolerating decline
[HONG KONG] The offshore yuan fell to a record low as Chinese policy makers signaled they are willing to allow greater declines amid a slump in exports and an advance in the dollar.
The exchange rate touched 6.7869 per dollar in New York Monday, the weakest intraday low in data going back to 2010. In Shanghai, the currency fell as much as 0.17 per cent to 6.7770 Monday, the lowest level in six years and well past the 6.75 year-end median forecast in a Bloomberg survey.
The yuan has come under increased pressure, with some analysts speculating that the central bank has reduced support after the yuan entered the International Monetary Fund's reserves on Oct 1. The onshore yuan has declined in all but one session this month as the People's Bank of China permitted a drop past the 6.7 level that was previously seen as its tolerance level. A gauge of the dollar rose to a seven-month high on Friday as the odds of a year-end Federal Reserve interest-rate increase climbed to 68 per cent.
The onshore yuan has weakened 4.1 per cent this year, the most in Asia, exacerbating pressures on capital flows and adding to pessimism on the currency. A net US$44.7 billion worth of yuan payments left the nation last month, according to data posted on the State Administration of Foreign Exchange's website Friday. That's the most since the government started releasing the figures in 2010, and compares with August's outflow of US$27.7 billion. Goldman Sachs Group Inc warned Friday that China's currency outflows have risen to US$500 billion this year.
Some Chinese banks sold the dollar around the 6.7740 level in the onshore market on Monday, said Li Liuyang, a market analyst at Bank of Tokyo-Mitsubishi UFJ in Shanghai. Dollar selling in both domestic and overseas markets accelerated in the afternoon as Europe-based accounts reduced exposure to the greenback, according to currency traders who asked not to be named.