China weakens renminbi for record 11th straight day

China has weakened the renminbi’s trading band for a record 11th straight day, taking its currency to an eight-year low as expectations of US interest rate rises buoyed the dollar against the region’s currencies.

This puts the renminbi within a hair’s breadth of suffering a 10 per cent decline versus the dollar since the People’s Bank of China caught markets by surprise with its one-off devaluation in August 2015.

So far this year, the onshore renminbi has fallen 5.8 per cent and is on track for its worst annual performance since Beijing abandoned a hard peg for its currency in 2005.

The PBoC fixed the midpoint of the renminbi’s 4 per cent onshore trading range against the dollar at Rmb6.8796 on Friday, down 0.15 per cent from Thursday, bringing the renminbi’s decline to 1.9 per cent over its weakening run.

The offshore renminbi — which is permitted to trade freely — fell to 6.9102, its weakest against the dollar since its introduction in 2010.

Although not as large as the $120bn-plus a month that was draining out of the economy at the start of the year, China’s capital outflows still remain sizeable, and continue to be driven by concerns over the direction of the renminbi, according to Julian Evans-Pritchard at Capital Economics.

“Looking ahead, we think a further slide in the Chinese currency against a globally-strong dollar may cause capital outflows to accelerate again. The PBoC could choose to intervene to stabilise the renminbi against the dollar but it would have to accept renewed trade-weighted renminbi appreciation, a price that it has so far been reluctant to pay,” Mr Evans-Pritchard said.

While the renminbi has been depreciating gradually against the dollar for most of this year, since the Brexit vote it weakened about 1 per cent against a trade-weighted basket of currencies, according to a weekly index published each week by the PBoC. That period saw it drop 4.7 per cent against the greenback.

Analysts continue to pare their forecasts for the Chinese currency. Paul Mackel at HSBC this week cut the bank’s forecast for the end of this year to Rmb6.9 to the dollar (previously Rmb6.8), and the end-2017 forecast to Rmb7.2 from Rmb6.9.

Similarly, ANZ Banking Group this week said it now set the renminbi at Rmb6.9 to the dollar by the end of this year, and Rmb7.1 by the end of 2017.

“While the authorities may act to limit the volatility of the moves, it is unlikely that they will defend any particular level. Uncertainty over whether US president-elect Trump will label China a currency manipulator is also weighing on the yuan,” said Khoon Goh at ANZ.