HONG KONG: China's currency remained weak on Thursday as investors anticipated that deflationary pressures and a slowing economy will make authorities cut interest rates again in coming months, which would erode key support for the renminbi.
Since last week's break below the 200-week moving average against the dollar, the yuan has slipped further. In recent days, it has also stayed very close to the bottom of its trading band.
On Thursday, spot yuan opened at 6.2598 per dollar and was changing hands at 6.2597 at midday, a pip away from the previous close and 1.98 percent away from the midpoint.
The People's Bank of China set the midpoint rate at 6.1379 per dollar prior to market open, firmer than the previous fix of 6.1384.
The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day.
In November, the PBOC startled markets with a rate cut - the first since 2012 - and followed up with a cut to banks' required reserve ratios in early February.
Analysts speculate that the central bank will be forced to take more aggressive easing measures in coming months if the inflation rate keeps falling and credit expansion continues to slow.
The economy is dangerously close to slipping into deflation, the central bank's newspaper warned on Wednesday. In recent weeks, price gauges have tumbled in China in line with a global rout in oil and commodity prices.
On Thursday morning, the offshore yuan was trading 0.15 percent lower than the onshore spot at 6.2692 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.386, or 3.89 percent lower than the onshore midpoint.
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