China's yuan slips, heads for 2nd biggest monthly loss ever

SHANGHAI: China's yuan eased against the dollar on Monday after the central bank fixed its official mid-point at a six-month low for the second straight trading day, putting it on course for its second-biggest monthly loss on record.

There were signs that major state-owned banks continued buying dollars on Monday, a move traders say reflects the People's Bank of China's (PBOC) intention to guide the yuan towards further depreciation.

Spot yuan stood at 6.2253 per dollar at midday, 0.21 percent weaker than Friday's close, after the PBOC fixed its mid-point at 6.1521, down 0.05 percent from the previous trading day.

It also marked the official base rate's weakest level since Sept. 18.

If the yuan closes at the midday level on Monday, it will have depreciated 1.3 percent against the dollar in March, the second biggest monthly loss since China established the domestic foreign exchange market in 1994.

The yuan recorded its biggest monthly loss in February when the PBOC surprised the world by engineering a 1.4 percent fall in the currency, in what traders say was designed to punish speculators betting on non-stop yuan appreciation.

"In recent years, the first quarter is typically a weak season for China's foreign trade and exports, so it offers a good opportunity for the central bank to launch a campaign to fight against those who are long the yuan," said a trader at a Chinese commercial bank in Shanghai.

"Foreign trade is expected to rebound in the second quarter and strengthen in the second half of the year, so the market widely expects the yuan to stabilise in the second quarter and rebound for the rest of the year," he said.

Traders said the yuan was likely to fall to 6.25 versus the dollar in coming weeks, then rebound in the second quarter as the trade outlook improves.

In a related development, China's foreign exchange regulator released data showing outstanding foreign debt of $863.2 billion at the end of last year, with outstanding short-term foreign debt standing at a high ratio of 78 percent of the total.

Traders, however, said the data had no immediate impact on trading on Monday.