Yuan Falls to Weakest Level in More Than a Year

SHANGHAI--China's yuan fell to its weakest level in more than a year Tuesday as Beijing signals it isn't done pushing the currency lower, a move aimed at shaking out speculators who bet on gains and flood the economy with excess cash.

The yuan fell as low as 6.2390 versus the dollar in the afternoon, its lowest level since February 2013, bringing losses for the year to 3% and making it the worst performing currency in Asia. The losses were triggered after The People's Bank of China set the morning daily reference rate weaker for a third trading session.

The unprecedented slide of the yuan over the past three months is drawing increasing criticism from major trading partners. The U.S. Treasury Department said last week the losses "raise particularly serious concerns' if they signal a retreat from Beijing's publicly stated policy of scaling back intervention to let market forces play a bigger role.

Beijing is pushing the currency down to deter heavy inflows from abroad which propel asset prices such as property higher. The doubling of the daily trading band last month to 2% also signals a greater tolerance by policy makers for more weakening of the yuan as the economy slows, according to analysts.

"We expect the prevailing easing in monetary policy to continue until China's economic data improves," wrote Irene Cheung, Asia FX strategist at ANZ in Singapore. "We do not think it is time yet to turn constructive on the RMB."

The next major support for the yuan will be at 6.25 and that could be reached in one or two months, said traders. A higher number means a weaker yuan.

"Some investors' expectations about the yuan may have changed after the central bank continued to push the fixing to new lows," says Huang Yi, a senior trader with China Guangfa Bank. "It's mostly banking corporate clients' dollar purchases" that are pushing the yuan lower in trading Tuesday, he added.

While the move is good for exporters because it makes their prices cheaper to overseas buyers, it is already having a bruising impact for companies like airlines, reliant on overseas currencies. Chinese flag carrier Air China Ltd. issued a profit warning Tuesday because of the weaker national currency, just days after rival China Southern Airlines Co. said it was also buffeted by the decline which makes purchases of fuel from abroad more expensive, and boosts the costs of servicing their dollar debt.

Wynne Wang

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