yuan

Investors haven’t responded to the Yuan’s protracted slide the way they did to last year’s sharp drop

A sharp drop in the yuan set global markets on edge last summer and winter. But markets have met the Chinese currency’s recent fall to six-year lows against the dollar with a shrug.

The weaker yuan and relative calm among investors are good news for China’s central bank. A falling currency makes Chinese exports more competitive and could boost an economy struggling with slowing growth.

At the same time, the currency’s retreat, gradual this time, hasn’t rattled investors who tend to respond more to large, sudden moves.

The yuan has declined 1.6% versus the dollar this month, while the yuan has gained against other major currencies like the euro and yen. That contrast signaled to some traders the yuan’s declines were more about dollar strength than yuan weakness.

On Tuesday, the tightly controlled yuan closed at 6.78 per dollar after being fixed at its lowest level since September 2010 by the Chinese central bank. In Hong Kong, where the currency trades freely around the clock, the yuan hit a record low against the dollar.

Some analysts warn that the calm may not last much longer as the yuan approaches 6.83, the level at which China held the currency throughout the financial crisis.

Beijing’s challenge is to let its currency weaken without triggering excessive outflows among companies and wealthy individuals looking to preserve their capital’s value.

“The fact that we’re seeing this move higher in the dollar-yuan probably does reflect capital outflows,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse.

China has ramped up capital controls intended to keep Chinese investors and corporations from moving their money into real estate, stocks and bonds abroad. A report from the Council on Foreign Relations estimated that China may have experienced outflows of up to $100 billion in the third quarter.

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(Source: Wall Street Journal)

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