SHANGHAI: The yuan fell to its lowest level against the dollar in six months on Thursday, after China’s central bank cut a key policy rate with analysts forecasting more easing steps as fresh data reinforced recent signs of a broad loss of economic momentum.
China’s central bank cut the borrowing cost of its medium-term policy loans for the first time in 10 months earlier in the day, in line with expectations and which appeared to be timed with data showing industrial output and retail sales growth missing forecasts.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate at 7.1489 per U.S. dollar, 77 pips firmer than the previous fix 7.1566.
Spot yuan opened at 7.1754 per dollar and was changing hands at 7.1754 at midday, 123 pips weaker than the previous late session close.
Thursday’s cut to the lending rate signaled possible easing for longer-term rates over the next week and beyond as demand and investor sentiment weaken.
UBS analysts said that offshore yuan spot rate had moved higher leading into the decision to cut the medium-term policy loan rate, as the market was widely expecting a reduction.
“With ongoing rate cuts for various People’s Bank of China (PBOC) tools and local data continuing to disappoint, the (trading) desk sees little scope for any sustained offshore yuan rally in the short to medium term,” the analysts wrote earlier in a note.
Maybank analysts concurred that continued economic weakness and potential for further easing from PBOC are likely to lead to more yuan losses against the dollar.
By midday, the global dollar index rose to 103.271 from the previous close of 102.948.
The offshore yuan was trading 86 pips weaker than the onshore spot at 7.184 per dollar.
The one-year forward value for the offshore yuan traded at 6.9713 per dollar, indicating a roughly 3.05% appreciation within 12 months.
China’s central bank cut the borrowing cost of its medium-term policy loans for the first time in 10 months earlier in the day, in line with expectations and which appeared to be timed with data showing industrial output and retail sales growth missing forecasts.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate at 7.1489 per U.S. dollar, 77 pips firmer than the previous fix 7.1566.
Spot yuan opened at 7.1754 per dollar and was changing hands at 7.1754 at midday, 123 pips weaker than the previous late session close.
Thursday’s cut to the lending rate signaled possible easing for longer-term rates over the next week and beyond as demand and investor sentiment weaken.
UBS analysts said that offshore yuan spot rate had moved higher leading into the decision to cut the medium-term policy loan rate, as the market was widely expecting a reduction.
“With ongoing rate cuts for various People’s Bank of China (PBOC) tools and local data continuing to disappoint, the (trading) desk sees little scope for any sustained offshore yuan rally in the short to medium term,” the analysts wrote earlier in a note.
Maybank analysts concurred that continued economic weakness and potential for further easing from PBOC are likely to lead to more yuan losses against the dollar.
By midday, the global dollar index rose to 103.271 from the previous close of 102.948.
The offshore yuan was trading 86 pips weaker than the onshore spot at 7.184 per dollar.
The one-year forward value for the offshore yuan traded at 6.9713 per dollar, indicating a roughly 3.05% appreciation within 12 months.