Yuan slides for fourth day in a row

PBOC Sets Yuan Fixing Weaker For 4th Straight Day, Intensifying Talk Of Wider Trading Band
The PBOC set the dollar-yuan central parity--a reference exchange rate--at 6.3235 Thursday, sharply higher than the dollar's closing level of CNY6.3099 in over-the-counter trading Wednesday. It is also higher than Wednesday's central parity of 6.3213.

"The market had been dead before this week, with the pair trading in a really narrow range. By guiding the central parity artificially higher, the PBOC did prompt people to trade more and make the daily range wider this week," said a Shanghai-based foreign bank trader.

At 0240 GMT, the dollar was quoted at CNY6.3138, which translates into a 0.3% depreciation by the yuan against the U.S. currency since Friday.
The yuan started weakening earlier this week, but the drop in the central parity rate comes as Beijing voices opposition to the U.S. trade action, see Protectionism Update from earlier today.

Forward contracts also anticipate a weaker yuan. Rmb: bearish forward signs
Since Friday, the renminbi has fallen about 0.3 per cent to Rmb6.314 per dollar. In the NDF market, the 12-month forward was on Wednesday trading at virtually the same level, having traded weaker than the spot rate on Tuesday (as shown by the mini red spike in the chart at the farthest right point.)

The recent sell-off in renminbi NDFs may be a bad sign for risk assets in general. Indeed, global equity markets have fallen sharply this week, with the Hang Seng down by almost 4 per cent over the past three days.

The change in appreciation expectations may also have been influenced by statements from Chinese policymakers. This week, Zhou Xiaochuan, governor of the People’s Bank of China, hinted that Beijing may soon loosen its grip on the country’s currency, saying the renminbi should be allowed to float more freely. He also said the renminbi exchange rate was close to equilibrium, evidenced by the shrinking trade surplus.

Analysts took the comments as a signal that Beijing was ready to widen the renminbi-dollar trading band, a move that would bring more market forces to bear on the Chinese currency.

The trouble is, for the time being at least, the market appears to have lost its appetite for the renminbi.
Even Chinese are starting to shed the renminbi for other investments, including U.S. dollar investments: China Replaces Europe in Funding NY Properties
Irish, German and French banks have led the retreat from the world’s most active commercial property market as regulators urge lenders to shrink their balance sheets to meet stricter capital standards at the same time Europe’s debt crisis roils credit markets. Replacements, such as Bank of China, may benefit as New York property owners have to refinance more than $18 billion of commercial mortgages bundled into bonds in the next two years, according to data compiled by Bloomberg.
Pent up domestic demand for investment opportunities means pent up selling of renminbi. Conversely, anyone who wants to invest in China finds it reasonably easy to do so.

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