Yuan set for biggest three-day loss since January on tax concern

[HONG KONG] The yuan was heading for the biggest three- day loss since January on concern a potential tax on foreign- exchange transactions will spur capital outflows and increase depreciation pressures.

The central bank's reported plans for a so-called Tobin tax drew criticism from economists, with Skandinaviska Enskilda Banken describing it as a setback to moves to a freer market and Mizuho Bank Ltd saying even long-term investors could become more wary of trading the yuan. The currency was also weaker as a gauge of the dollar's strength advanced 0.6 per cent in the last two days.

The Chinese currency declined 0.12 per cent to 6.5200 a US dollar as of 9:42 am in Shanghai, according to China Foreign Exchange Trade System prices. That takes its three-day retreat to 0.4 per cent, the most since Jan 8. The yuan traded in Hong Kong extended this week's losses to 0.5 per cent. The People's Bank of China weakened its reference rate by 0.14 per cent to 6.5172.

"The last two days we've seen the yuan follow the dollar rather than a basket of currencies," said Andy Ji, a Singapore-based foreign-exchange strategist and economist at Commonwealth Bank of Australia.

"It looks like the fixing is following not the official 4.30 pm close but the 11.30 pm close over the last two sessions."

The central bank said in December that, although it was extending onshore trading hours, it would continue to view the 4:30 pm price as the closing level. This was significant because the monetary authority's system of setting the yuan's daily fixing uses the previous day's close as one of the factors.

BLOOMBERG