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March 24, 2016 6:34 am
China weakens renminbi most in two months
Jennifer Hughes in Hong Kong
China’s central bank weakened the renminbi by the most in more than two months against the dollar, sparking speculation the move was an attempt to get ahead of any monetary tightening by the US next month.
The People’s Bank of China fixed the midpoint of the renminbi’s onshore trading range at Rmb6.515 against the dollar on Thursday — 214 basis points, or 0.33 per cent, weaker than the day before. It was the largest daily change in the midpoint — around which the renminbi can trade 2 per cent either side — since January 7.
The move comes after a week-long rally by the dollar against a range of currencies after Federal Reserve officials signalled that the US central bank could yet raise interest rates in April, in spite of a reduction in rate-rise forecasts at the Fed’s most recent meeting.
“This has fuelled speculations that the PBoC has again acted ahead of the curve as the market has started to price in more possibility of a Fed rate hike in April,” said Zhou Hao, strategist at Commerzbank.
“Indeed, a Chinese official recently expressed concern that rate hikes by the Fed will spur capital outflows and add pressure on renminbi management.”
While the PBoC measures the renminbi against a basket of currencies, not just the dollar, markets still react most to changes in its value against the dollar, whose recent rally risked strengthening the Chinese currency against that basket.
Since hitting a three-month high onshore of Rmb6.464 against the dollar last week, the Chinese currency has weakened in the face of US strength. The scale of Thursday’s move lower caught markets by surprise and pushed the offshore rate to Rmb6.5181, creating the biggest gap between the two in a fortnight.
A weaker offshore rate compared with the more tightly controlled onshore market implies international investors are betting on a faster pace of renminbi depreciation than the PBoC would like.
Analysts, however, warned against reading too much into the weakness in the offshore rate given the thin, pre-holiday liquidity. They pointed to the fact that the PBoC was keen to deter speculators, and has a habit of wrongfooting investors around holiday closures in a bid to change market sentiment.
Jason Daw, currency strategist at Société Générale, said many international investors who had been betting on a weaker renminbi have recently reduced their bets or pushed out their expected timescale for further weakness.
“The PBoC is unwilling to reward speculators and this might not change any time soon,” he added.
Traders and analysts watch the fix closely each day. Although the PBoC has said the rate it sets is reflective of the market close the previous day, there was little in Wednesday’s Rmb6.496 close in Beijing or the Rmb6.505 close in London to imply a sharply weaker rate on Thursday, analysts said.
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