Yuan depreciates for second day as PBOC weakens reference rate

[HONG KONG] The yuan fell for a second day after the central bank weakened the fixing before data expected to show a deeper slowdown in the nation's economy.

The Chinese currency dropped 0.1 per cent to 6.5716 per US dollar at 10:52 am after the People's Bank of China weakened its daily reference rate by the most in a week. The yuan slipped to the lowest level since November 2014 against a trade-weighted basket.

Data due Wednesday will probably show exports declined 4 per cent in May, the most in three months, according to Bloomberg survey of analysts. Goldman Sachs Group Inc said last week the yuan's weakness may trigger capital outflows and fuel speculation of a one-off devaluation.

China's foreign-exchange reserves probably dropped by US$19 billion in May to US$3.2 trillion, a separate Bloomberg survey showed.

"What's clear from the fixing itself is there is a preference for some depreciation of the yuan," said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd.

"There is a preference there but there's a limit to how far the yuan can fall without giving rise to concerns about competitive devaluation."

The losses come after the yuan jumped 0.5 per cent Friday following the weakest US jobs growth since 2010 that drove down the greenback. Federal Reserve Chair Janet Yellen indicated on Monday that US interest-rate increases will only come gradually.

The offshore currency fell 0.2 per cent to 6.5760. The yuan weakened 0.2 per cent against a basket of peers including the euro and the yen. Financial markets in China will be closed for holidays on Thursday and Friday.

BLOOMBERG