Yuan falls to three-week low as more easing seen to boost growth

[BEIJING] The yuan fell to a three-week low on speculation Chinese authorities will ease monetary policy further to spur growth and after the US dropped its view the currency is significantly undervalued.

China's economy recorded its weakest quarterly expansion in more than six years, a report showed on Monday. There will be one more 25 basis point cut in benchmark interest rates and a 1.5 percentage points reduction in lenders' reserve ratios before year-end, HSBC Holdings Plc forecast the same day. The US Treasury softened its criticism of China's exchange-rate policy, but said the yuan remains "below its appropriate medium- term valuation," in a semiannual report.

"The market is concerned about China's growth due to the weak data and risk appetite is lower," said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd in Singapore. "China's central bank will probably cut reserve-requirement ratios at least once more this year to stimulate growth." The onshore yuan, which is restricted to moving a maximum of 2 per cent either side of a daily fixing, fell 0.04 per cent to 6.3626 a dollar as of 9:53 am in Shanghai, according to China Foreign Exchange Trade System prices. The currency dropped to 6.3693 earlier, the weakest level since Sept 28. The People's Bank of China cut the fixing by 0.14 per cent to 6.3614. The freely traded offshore rate in Hong Kong declined 0.06 per cent to 6.3776, according to data compiled by Bloomberg.

Gross domestic product rose 6.9 per cent in the third quarter from a year earlier, compared with the median estimate of 6.8 per cent in a Bloomberg survey.

It's unnecessary to be anxious over China's economic growth in the first nine months of the year, as it was within expectations and adjustment directions, the official Xinhua News Agency wrote in a commentary on its website Monday. Positive signs are increasing and the economy has momentum, Xinhua wrote in a separate report citing a meeting of the National Committee of the Chinese People's Political Consultative Conference.

Factors such as a large and growing current-account surplus, and net inflows of foreign direct investment will drive the yuan stronger, the US Treasury said in its report. China intervened "heavily" in the foreign-exchange market in the last three months, spending an estimated total of US$229 billion to prevent the yuan from falling, according to the report. A test of China's new regime will be whether the country allows the currency to "respond flexibly to appreciation as well as depreciation pressures," the Treasury said.

BLOOMBERG