China's resilient yuan has fallen this week to its lowest level in more than a month, finally succumbing to jitters about signs of weakness in the economy.
The yuan on Tuesday weakened to about 6.15 per dollar, its lowest level since mid-May and off a record high hit late last month of around 6.12.
Analysts say the yuan, which has held up relatively well compared with its Asian currency peers in the face of a broadly-robust dollar, is also facing downward pressure from the heavy sell-off in equity markets this week and jitters about a credit squeeze faced by local lenders.
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"We have been looking for a correction lower in the yuan for a few reasons," said Mitul Kotecha, head of global currency research at Credit Agricole in Hong Kong. "Its upward move had looked overly rapid at a time when other Asian currencies were weakening. Also, economic growth has been weakening and that has added a weakening bias to the currency."
Concerns about China's economic outlook have grown in recent weeks as data proved largely disappointing. A number of economists have cut their forecasts for gross domestic product growth this year, while comments from China's new government suggest Beijing is happy to tolerate a slower rate of growth as long-term structural reforms take place.
Data released last week for instance suggested that activity in the manufacturing sector is contracting.
A credit crunch in Chinese money markets and a tolerance by the central bank of the tight liquidity conditions meanwhile have heightened concerns about growth, helping send Shanghai's benchmark stock index to its lowest level in more than four years on Tuesday.
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"At this stage it [the credit squeeze] does add to downside risks for the Chinese economy this year and a weaker-than-expected renminbi over the medium term," Jonathan Cavenagh, senior FX strategist at Westpac Bank told CNBC Asia's
"The renminbi has really outperformed the rest of the Asian currency block over the past one to two months and I really don't see that being sustained," he added.
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The yuan, which is also known as the renminbi, is up about 1.4 percent against the greenback so far this year. It has proved resilient even as other Asian currencies fall sharply against the dollar on expectations for an unwinding of the Federal Reserve's monetary policy stimulus program this year.