Yuan declines toward weakest level in more than a decade

China’s yuan slid toward its weakest in a decade and close to a key support level of 7 per dollar, before paring its loss slightly as the central bank said it was confident it could keep the currency stable.

On Friday he yuan declined as much as 0.22 percent to 6.9647 per dollar, the weakest intraday level since late 2016, when it hit 6.9666. That was the lowest since May 2008.

The currency has come under renewed pressure of late, after the People’s Bank of China cut its reserve-ratio requirement for a fourth time this year and as the yield spread between Chinese and U.S. government bonds hovers near the lowest since April 2011. The last time the yuan slid to this level, the government engineered a dramatic liquidity squeeze in the offshore market.

PBOC Deputy Governor Pan Gongsheng said Friday the central bank will continue to take macro-prudential measures to stabilize expectations in the foreign-exchange market and keep the yuan at a reasonable, equilibrium level. He said the yuan is stable compared with other other currencies and that its recent weakness has been driven by factors including U.S. rate hikes, trade tension and a stronger dollar.

“We have dealt with short-sellers of the yuan a few years ago, and we are very familiar with each other,” Pan said at a briefing in Beijing. “I think we both have vivid memories of the past.”

January 2017: Bears Scramble for Yuan as China Chokes Flows, Aids Currency

The yuan has tumbled 9 percent over six months, making it one of the worst performing currencies in Asia, amid escalating trade tensions with the U.S. and a slowing domestic economy. There are already signs of capital outflows: the nation’s foreign-exchange reserves shrank more than every economist’s projection in a Bloomberg survey in September.

“There is a high chance that the yuan will break 7 a dollar, as the greenback is very strong and it seems like the PBOC is in no rush to stem depreciation,” said Iris Pang, Greater China economist with ING Groep NV in Hong Kong. “The PBOC may not intervene heavily before the level is reached – it’s unnecessary to burn foreign reserves when the weakness is driven by fundamentals.”

The PBOC set the yuan’s daily reference rate weaker than expected on Friday, and the currency declined for a third straight day. Its moves have been relatively muted in recent days, though trading volume hit a record high on Wednesday, stoking speculation authorities intervened to stem depreciation. Chinese Premier Li Keqiang said at a conference on Friday that China won’t engage in competitive devaluation of the yuan.

The U.S. stopped short of labeling China a currency manipulator in a semi-annual report this month, but it did criticize the country for not disclosing its currency interventions. Treasury Secretary Steven Mnuchin said there could be a change in methodology for determining whether countries are gaming their currencies. Tian Chen, Bloomberg