Expectations of U.S. interest rate hike adversely hit China
The yuan weakened to a six-year low against the dollar on Monday, partly as the greenback rose on expectations of a possible U.S. rate hike before the end of this year, an expert said.
The central parity rate of the yuan declined 222 basis points to 6.7379 against the dollar on Monday, according to the China Foreign Exchange Trading System.
The People's Bank of China (PBC), the country's central bank, sets the central parity rate. The yuan is allowed to rise or fall by 2 percent daily from that rate in the spot market.
The closing price of the onshore yuan against the U.S. dollar fell to 6.7396 on Monday, according to domestic web portal sina.com on Monday.
The offshore yuan against the U.S. dollar was 6.7483 as of 17:46 on Monday, according to marketwatch.com on Monday.
The dollar was almost unchanged at a seven-month high against other major currencies on Monday, according to a report Monday from the financial website investing.com.
"The yuan depreciation recently was caused by many factors, including domestic economic uncertainty such as debt risks, rising capital outflow and declining exports," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Monday.
"If the U.S. dollar rallies, the yuan is going to have further devaluation," Zhou said.
But in the long term, China will ensure that its foreign reserves remain sufficient to make sure there is no long term devaluation risk for the yuan, thanks to the stability of China's financial system, Zhou noted.
The yuan has been included by the IMF in an exclusive group of currencies that make up the Special Drawing Rights (SDR) basket, a decision that was announced by the International Monetary Fund in December.
The reserve basket is currently made up of the British pound, Japanese yen, the euro, the U.S. dollar and the yuan.
"The yuan joining the SDR would also help stabilize the yuan's exchange rate for the long term," Zhou said.
The markets have gradually become accustomed to a two-way float of the currency and flexibility since a large depreciation in August 2015, Zhou said.
