Weak exports, fall in foreign reserves contribute to slide
The yuan edged down to its weakest level in four years against the U.S. dollar in the onshore market on Tuesday, following a decline in offshore yuan.
Onshore yuan trading closed at 6.4181 against the dollar on Tuesday, after the People's Bank of China (PBC), the central bank, cut the central parity rate by 0.15 percent to 6.4078 per dollar before the market opened, weaker than the previous rate of 6.3985 but firmer than Monday's closing quote of 6.4082, according to domestic financial news portal eastmoney.com.
Tuesday's onshore yuan was at the lowest since August 2011, and the central parity rate, around which the yuan is allowed to trade by a maximum of 2 percent on either side, was the lowest since August 11, eastmoney.com noted.
The PBC cut the central parity rate by 1.86 percent on August 11, which resulted in the largest yuan devaluation in two decades, according to Bloomberg.
Offshore yuan fell 0.32 percent to 6.4935 per dollar as of 5:55 am on Tuesday U.S. time. The gap between onshore and offshore yuan rates could further widen and exceed 700 basis points, eastmoney.com reported Tuesday.
Analyst said Tuesday's yuan devaluation was partially due to a drop in foreign exchange reserves and weak export numbers in November.
Figures released on Monday showing a decline in China's foreign exchange reserves led to the yuan devaluation at the opening on Tuesday, and the trade performance numbers released on Tuesday further pushed the yuan lower, said Tan Yaling, dean of the Beijing-based China Forex Investment Research Institute.
Both foreign exchange reserves and exports are indicators of capital flows, which affect the exchange rate, Tan told the Global Times on Tuesday.
Foreign exchange reserves contracted to $3.4 trillion in November, $87.2 billion less than a month earlier, according to data released Monday by the PBC.
China's trade performance remained weak in November, with both exports and imports continuing to fall, according to official data announced on Tuesday. Exports declined by 3.7 percent to 1.25 trillion yuan ($194.89 billion), and imports fell 5.6 percent to 910 billion yuan, both on a year-on-year basis, the General Administration of Customs said Tuesday.
Gao Ting, chief China strategist at UBS, agreed that the yuan will continue to drop.
In a note sent to the Global Times on Monday, he said that the yuan would be trading at about 6.5 against the dollar by year-end and would reach 6.8 per dollar at the end of 2016.
