(Bloomberg) — traders are finally moving on from the 7-per-dollar complex that has gripped the market for years.
China’s currency weakened slightly on Friday to 7.0501 per greenback, following a daily reference rate from the People’s Bank of China that was in line with estimates. There was no sign of the panic seen earlier this week even as the yuan dropped to a fresh low versus a basket of trading-partner currencies. Volume in the onshore rate is down every day since Monday.
With the four-year anniversary of China’s shock devaluation approaching on Aug. 11, currency traders are adjusting to a new reality without the line in the sand that has helped cushion declines since 2015. Officials have this week pledged stability after abandoning the key support level, allowing the yuan to weaken past 7 for the first time since 2008.
While a weaker currency is a natural consequence of China’s worsening economy and a central bank in easing mode, Monday’s sudden depreciation made it a target of criticism from the Trump administration. The yuan’s biggest slump since 2015 spurred panic all over the world, prompting accusations from the U.S. that China was manipulating the exchange rate as tool to fight the trade war.
China does have a history of keeping the yuan weak to boost exports, although in recent years it’s actually worked to prop up the currency. Earlier in 2019, the central bank was seen defending the 6.9 level with a string of daily fixings that came in stronger than expected. The yuan was the world’s dullest currency only a few weeks ago, even as tensions with the U.S. on trade suddenly escalated.
This week’s moves signaled the PBOC is comfortable with currency weakness while also demonstrating that China isn’t prepared to let the yuan go into the kind of downward spiral that in 2015 spurred capital outflows. After officials this week reassured foreign companies that the yuan won’t weaken significantly, PBOC adviser Ma Jun told Financial News the nation is more capable of keeping the yuan stable versus 2015.
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