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Yuan weakens as PBOC cuts reference rate by most in six weeks
[HONG KONG] The yuan fell as the People's Bank of China cut its daily reference rate by the most in six weeks, damping confidence that the exchange rate will be kept stable before a meeting of the Group of 20 central bankers and finance ministers.
The currency fell 0.09 per cent to 6.5288 a US dollar as of 10:06 am in Shanghai, according to China Foreign Exchange Trade System prices. In Hong Kong's offshore market the yuan dropped to the lowest in almost two weeks.
The central bank's fixing was cut by 0.17 per cent, more than the decline of about 0.015 per cent that Australia & New Zealand Banking Group Ltd strategist Irene Cheung said she'd been expecting.
While the central bank has said it aims to keep the yuan steady against a basket of currencies, the PBOC stabilized its fixings versus the greenback last month after an eight-day run of reductions through Jan 7 heightened concern about the state of China's economy and roiled global markets.
Finance chiefs from the world's biggest economies will meet in Shanghai on Feb 26 and 27 to discuss the recent turmoil in China's markets and ways to bolster a safety net for the global financial system, according to officials familiar with the agenda.
"We haven't really seen a consistent framework in the management of the currency," said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd.
"Maybe all this flip-flopping we're seeing is what the authorities mean by saying they want flexibility in the currency."
The offshore yuan fell as much as 0.15 per cent to 6.5379 a US dollar, the weakest level since Feb 10. It's gained 0.9 per cent this month after weakening 0.4 per cent in January, when the currency sank to five-year lows in both Hong Kong and Shanghai.
A Bloomberg replica of the CFETS RMB Index, which measures the yuan against 13 currencies, fell for the third day in a row. The yuan's volatility versus the greenback will increase but stay relatively stable against the basket, PBOC governor Zhou Xiaochuan said in an interview with Caixin magazine published this month.
"They are emphasizing the basket more and more and we can see that in the fixing in the last four days," said ANZ's Ms Cheung, who is based in Singapore.
"As as a result, we will see more pronounced moves against the dollar and I expect this to continue in the coming days ahead of the G-20 meeting."