China weakens yuan to eight-year low

China on Tuesday weakened the yuan’s fix against the dollar to a nearly eight-year low as the surging dollar put further pressure on the unit, complicating Beijing's efforts to manage it. The central People’s Bank of China set the value of the yuan –- also known as the renminbi –- at 6.8495 to the greenback, down 0.30 percent from Monday’s fixing, according to data from the Foreign Exchange Trade System. The unit has reached a series of six-year lows in recent weeks in the face of a greenback rising on expectations of sharper US interest rate hikes, with President-elect Donald Trump pledging during his campaign to ramp up spending and cut taxes. But Tuesday's fix was the weakest since December 2008, and beyond the roughly 6.83 level at which Beijing virtually pegged the unit for nine months in 2009-10, in the aftermath of the global financial crisis. China only allows the yuan to rise or fall two percent on either side of the daily fix, one of the ways it maintains control over the currency. During the presidential campaign Trump repeatedly accused China of keeping the yuan undervalued to boost exports and threatened to declare Beijing a currency manipulator once in office. But analysts and officials say that Beijing is now intervening in the opposite direction, and trying to prop up the unit's value against a strengthening greenback. The US Treasury in October cleared China of keeping the yuan cheap for trade advantages, saying the currency could have fallen more had Beijing not acted. “It's a USD story so far -- and possible intervention to see us back from the brink,” Michael Every, head of Asia-Pacific financial markets research at Rabo Bank, said in a written response to AFP. Barclays forecasts that the onshore yuan will fall to 7.15 against the dollar by the end of the third quarter next year. The bank's Singapore-based head of Asia FX and rates strategy Mitul Kotech said the yuan was basically tracking moves by the dollar. “We are still awaiting what policies are going to be in terms of Trump's policies towards (China) given what he said in the run-up to the election." It was "not a cause of concern at this point in time" he said. But while Trump's direction in office remains unclear, he has also threatened to impose tariffs of 45 percent on Chinese-made goods, raising the prospect of a trans-Pacific trade war. Dariusz Kowalczyk, senior emerging market strategist at Credit Agricole, warned that "concerns over the impact of US tariffs on China’s growth and external position would magnify the outflow. "China’s international investment position shows that there is still a lot of capital that could leave," he said in a note. - Losing faith - A weaker yuan could help Chinese exports, which fell for a seventh consecutive month in October but are still a key growth driver for the world's second-largest economy. But it also threatens to accelerate capital flight -- which in turn adds to downed pressure on the currency. In August last year, Beijing suddenly devalued the yuan, causing investors to dump the unit in volumes not seen since 1994 and sparking an outflow of money from China. China has spent hundreds of billions of dollars from its vast foreign exchange reserves, the world's largest, in its efforts to keep the renminbi from falling too rapidly. “Yuan deprecation means more capital outflow and more pressure on China’s foreign exchange reserves,” Liao Qun, Citic Bank International Chief economist, told AFP. “This will affect the world’s confidence towards the renminbi, as well as faith in China’s economy. "China is trying to push for the internationalisation of the yuan and if the market lost its faith in the unit, the process could become more difficult.” The International Monetary Fund in October officially included yuan in its elite SDR reserve currency basket, a symbolic coup for Beijing policymakers. The onshore yuan closed at 6.8530, 0.18 percent weaker than Monday's close of 6.8409, according to the Foreign Exchange Trade System.