Chinese yuan continues to weaken against US dollar

The Chinese currency, the Renminbi or the yuan, weakened 32 basis points to 6.1224 against the U.S. dollar on Thursday, according to the China Foreign Exchange Trading System. The RMB has depreciated against the U.S. dollar in seven out of the past eight trading days since Feb. 18. The exception was Feb. 25, when the yuan strengthened 5 basis points. In total, the yuan has fallen 171 points during the past eight trading days. China's domestic foreign exchange spot change rate hit a seven-month low on Tuesday, according to China's forex watchdog. In China's foreign exchange spot market, the yuan is allowed to rise or fall by one percent from the central parity rate each trading day. Thecentral parity rate of the yuan against the U.S. dollar is based on a weighted average of prices before the opening of the market each business day. China's forex watchdog, in response to continuous yuan depreciation and market speculations over its cause, said on Wednesday that the latest round of yuan volatility this past week is normal. Recent movements of the Renminbi resulted from the market correcting previous yuan trade strategies, said the State Administration of Foreign Exchange (SAFE) in a statement. Two-way fluctuations of the yuan are normal because of reforms in the yuan forex rate formation mechanism and a larger role played by the market, SAFE said. The two-way fluctuations will help boost international income balances, improve the external economic environment and guard against financial risks, it said. Despite recent depreciation, Lu Ting, chief China economist with Bank of America Merrill Lynch, said his institution continued to expect some yuan appreciation in 2014 with a year-end target of 6.00 yuan against one U.S. dollar. There is no basis for sustained yuan depreciation, as China's trade surplus is expected to rise to 280 billion U.S. dollars in 2014 from 265 U.S. dollars in 2013, he said in a research note. Moreover, China will still be perceived as relatively safe compared with other emerging markets, owing to its large holdings of foreign exchange reserves and robust economic growth, Lu said. Chinese policymakers and scholars, however, have reached the consensus that the current USD to RMB exchange rate is close to equilibrium level, and that further one-way appreciation of the yuan against the U.S. dollar should be avoided, according to Lu.