Yuan falls to three-week low on China trade data, Fed rate bets

NOV 9, 201511:21 AM

[BEIJING] The yuan dropped to the lowest in almost three weeks after a slump in China's trade flows worsened the outlook for Asia's largest economy and as the Federal Reserve prepares to raise interest rates.

China's exports fell for a fourth month in October, exceeded the decline estimated by all 31 economists in a Bloomberg survey, official data showed ON Sunday. Imports fell for a 12th month, matching a record stretch of contractions. A gauge of the dollar's strength versus its major peers soared to the highest level in a decade on Friday after a report showed US payrolls last month gained the most this year in October. That boosted the odds of a Fed rate increase in 2015 to 68 per cent from 34 per cent two weeks earlier.

"China's trade data showed that its economy is challenged by sluggish demand at home and abroad, and the fundamentals are still weak," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd in Hong Kong. "There are stronger expectations for a rate increase in the US, which will attract capital from emerging markets such as China, and that's also pressuring the yuan."

The yuan in Shanghai, which is allowed to diverge a maximum 2 per cent from the central bank's fixing, dropped 0.15 per cent to 6.3627 a dollar as of 11:02 aM, according to China Foreign Exchange Trade System prices. It fell to 6.3678, the lowest since Oct. 20.

The People's Bank of China weakened its daily reference rate for the currency by 0.19 per cent to 6.3578 a dollar. The offshore yuan, which trades freely in Hong Kong, gained 0.07 percent to 6.3871, data compiled by Bloomberg show.

China's overseas shipments dropped 6.9 per cent in October in dollar terms, the customs administration said Sunday. Weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8 per cent, leaving a record trade surplus of US$61.6 billion.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, jumped 1.1 per cent on Friday to close at the highest level since its inception at the end of 2004.

China's foreign-exchange stockpile rose to US$3.53 trillion last month from US$3.51 trillion at the end of September, according to official data released Saturday. That compared with a drop of US$43.3 billion in September and a record US$93.9 billion slide in August.

China will allow foreign central banks to trade all onshore currency products, including spots, forwards, swaps and options, the PBOC said in a statement Friday, as authorities seek the yuan's inclusion in the International Monetary Fund's basket of reserves in a review later this month.

BLOOMBERG