China weakens currency fixing to the lowest since 2011

SHANGHAI — China’s central bank weakened its currency fixing to the lowest since March 2011 as the US dollar strengthened.

The reference rate was set 0.3 per cent weaker at 6.5693 per dollar. A gauge of the greenback’s strength rose to a two-month high on Tuesday (May 24) as traders boosted wagers that US interest rates will rise. The yuan declined 0.06 per cent to 6.5631 a dollar as of 5.10pm in Shanghai.

A resurgent greenback is shaking up a strategy that the People’s Bank of China pursued over the past three months — a steady rate against the dollar, combined with depreciation against other major currencies. Traders are now pricing in a better-than-even chance of the Federal Reserve boosting borrowing costs by its July meeting, with officials lining up to indicate their willingness to support such a move, should the current strength in the economy be sustained.

“It could be because the authorities want to alleviate some of the depreciation pressure before the Fed interest rate decision in June,” said Christy Tan, head of markets strategy at National Australia Bank in Hong Kong. “If there are signs of panic dollar buying, the PBOC will step in.”

While the fixing is below levels reached during the currency’s turmoil in January, the market rate is still 0.5 per cent stronger than its nadir in January as traders show few signs of panic.

Even so, investors are watching the currency as a barometer for the health of the world’s second-largest economy.The earliest batch of private indicators suggest sluggish growth in May.

“Compared to our model prediction, it’s a little bit weaker, so that’s quite significant,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group in Singapore.

Chinese officials plan to press their American counterparts in annual talks next month on the chance of a US interest-rate increase in June, according to people familiar with the matter.

In China’s view, if the Fed does lift borrowing costs, a July move would be preferable, the people said. The offshore yuan was little changed at 6.5673. BLOOMBERG