Yuan weakens against USD, with limited room for further depreciation

BEIJING - China's yuan on Thursday returned to losing territory despite a mild gain on the previous trading day, but further depreciation is expected to be limited.

The central parity rate of the Chinese currency, the renminbi or the yuan, weakened 31 basis points to 6.7736 against the US dollar Thursday, according to the China Foreign Exchange Trading System.

Although still slipping, the change narrowed from previous sharp falls. The rate had broken its six-year low for three consecutive days since last Friday, with daily weakening up to 247 basis points.

Room for further depreciation will be limited as China's economic fundamentals remain stable and the dollar's upward momentum is waning, the Financial News said on Thursday.

"The confidence in the yuan stems from economic fundamentals, monetary policies and the stable yuan's domestic value," Xie Yaxuan, an economist with China Merchants Securities, was quoted by the newspaper as saying.

Cross-border capital outflows have been slowing and banks' foreign exchange sales/purchase deficit has been falling since the start of October.

Investors have actually stayed relatively calm in the face of the yuan's weakness due to a more transparent and market-oriented yuan exchange rate formation mechanism and emerging signs of a stabilizing economy.

Yi Gang, deputy governor of the People's Bank of China, the central bank, said earlier this week that there is no basis for persistent depreciation as China's 6.5- to 7-percent growth will help the currency remain at a reasonable level.

"The yuan has stayed stable against a basket of currencies and is less volatile than most reserve currencies and emerging market currencies," he said.

In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day.

The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.