VAT cashback.  Reuters/Jason Lee/File Photo
VAT cashback. Reuters/Jason Lee/File Photo

The onshore Renminbi has fallen further against the US dollar, dropping down to the 6.70 key defensive line on Monday.

The last time the mid-price of the yuan against the US dollar fell to 6.7011 was more than six years ago, on September 30, 2010. The mid-price rose after that, with fluctuations, until the currency reform on August 11, 2015, which triggered a one-time devaluation of the yuan by 200 basis points, prompting the currency’s downward trend.

Wan Zhao, a financial markets analyst for China Merchant Bank told Caixin that, given the seesaw nature of the yuan-dollar relationship, the yuan would face further devaluation pressure in the short-term. If the US dollar rallies, the extent of the yuan’s devaluation will depend on regulators’ responses.

The People’s Bank of China set the mid-price at 6.7098 on Tuesday, making it the second consecutive day it had set the yuan’s central parity rate below the 6.70 line. Zhang Jun, the chief economist at Morgan Stanley-China Fortune Securities commented that the People’s Bank of China is sending a signal to the market that 6.70 is not rock bottom. Bidirectional fluctuations in a wider band are allowed, he said.

The People’s Bank of China’s said on October 10 that the three Renminbi exchange rates (the onshore, offshore and mid-price of the yuan) were more “stable” for September this year compared to in August. In the medium to long term, China will ensure that its forex reserves remain “sufficient”, it added, stressing that the Renminbi does not have any “fundamental long term devaluation risk” thanks to the stability of China’s financial system.