The People’s Bank of China set the midpoint rate at 6.4626 per dollar prior to market open, 0.1 percent weaker than the previous fix of 6.4559, the eighth straight day the fixing has been weaker.
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The potential interest rate hike would affect China as the two economies are highly connected, said Tian Yun, a research fellow at the China Society of Macroeconomics under the National Development and Reform Commission, the country’s top economic planner.
The central parity rate of the yuan weakened by 131 basis points to 6.4757 against the U.S. dollar on Thursday, according to the China Foreign Exchange Trading System.
“We should find the yuan’s equilibrium exchange rate between the dollar, euro and yen”, he added.
The rebound in Hong Kong closed the gap to about 570 pips and Lam said he expects policymakers to ensure the spread does not exceed 1,000 pips.
The world’s second largest economy grew 6.9 percent in the third quarter, the slowest pace since the global financial crisis. Foreign banks were allowed to join this market one month later. “(Market players) became a little bit more cautious since yesterday after the yuan reached a fresh low level around 6.46”, said a trader at a Chinese commercial bank in Shanghai in morning trade. “We suspect that the PBOC has resumed its intervention activities to defend weakness in the offshore yuan, resulting in offshore yields spiking higher”, Teo wrote.
Even though the dollar-yuan rate is at its lowest since July 2011 the PBOC wants the market to stop focusing on the yuan/dollar relationship.
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PBOC is trying to cover up the persistent loss of Chinese currency by claiming that the yuan shouldn’t be compared alone with the dollar. The onshore spot rate can only trade as much a 2 percent on either side of the daily fixing. “Out-of-control capital outflow is unthinkable”, he said in an analysis note. In an effort to do this on Friday the bank launched a new index measuring the yuan against a basket of currencies.
