China's Yuan Declines for Third Day


The yuan fell for a third day on speculation the central bank wants to slow gains to limit the impact on exporters. Bonds rose.

The currency is set for its longest losing streak this year as the People's Bank of China may seek to deter speculators from betting on one-way moves after the yuan had its biggest advance last week of 2008. Chinese banks should avoid one-way bets on the yuan to gain as the currency may drop in the future, an official at the nation's foreign-exchange regulator said today.

The yuan declined 0.08 percent to 7.1580 per dollar as of the 5:30 p.m. close in Shanghai, compared with 7.1522 yesterday, according to China Foreign Exchange Trade System. It earlier fell as much as 0.28 percent.

Forward contracts yesterday showed traders were the most bullish on the outlook for gains in the currency since a link to the dollar was scrapped in July 2005. Forwards, agreements in which assets are bought and sold at current prices for future delivery, show traders are betting the yuan will rise 10.3 percent to 6.4955 per dollar in 12 months. The rate was as high as 6.4815 yesterday.

Gains in the currency that are too fast may threaten to cut exporters' profit and spur unemployment. Premier Wen Jiabao is trying to ease inflation and growth without triggering a sudden economic slowdown that may cost jobs and leave factories idle.

The currency has strengthened 2 percent so far this year after rising about 7 percent in 2007 as policy makers allow faster gains to curb inflation from an 11-year high. China's economy expanded 11.4 percent in 2007 from a year earlier, the fastest pace in 13 years, on exports and investment.


TradingEconomics.com, Bloomberg
2/26/2008 6:45:20 AM