China's yuan stumbled to its weakest in more than four months on Tuesday, falling past a psychologically important level after the central bank's softer fixing and broad dollar strength. "The authorities are sending a message that they are comfortable with the current trading range, albeit the spot rate breached the 6.4 per dollar level," said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong.
Cheung believes that Beijing is "happy to see the yuan turn weaker" as the currency has strengthened against its trade-weighted basket which raises concerns about the country's export competitiveness. The Chinese currency hit a peak in late March this year at 6.2418, when it was up 4.2 percent against the greenback since the start of the year. It is now up 1.5 percent year-to-date.
Prior to market opening, the People's Bank of China lowered its official yuan midpoint to 6.4021 per dollar, 59 pips or 0.1 percent weaker than the pervious fix at 6.3962. Tuesday's official fixing was the weakest since January 22. In the spot market, the onshore yuan opened at 6.4050 per dollar, and fell to a low of 6.4177 per dollar at one point in morning trade, the weakest since January 18.
The offshore yuan was trading at 6.4121 per dollar as of midday. A trader at a Chinese bank said continuous corporate dollar selling in recent weeks had helped steady the yuan, but such sales eased off after the yuan breached 6.4. Mizuho's Cheung expects the yuan to face more pressure, possibly weakening to 6.5 per dollar this year. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.22, weaker than the previous day's 98.41.
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