The offshore yuan traded near a record low as Chinese policymakers signaled they are willing to allow greater currencyflexibility amid a slump in exports and an advance in thedollar.

The exchange rate was little changed at 6.7828 per dollar as of7:19 p.m. in Hong Kong, after dropping to 6.7885, the weakestintraday level in data going back to 2010. In Shanghai, thecurrency was also little changed at 6.7771, close to a six-year lowand past the 6.75 year-end median forecast in a Bloombergsurvey.

The Chinese currency has come under increased pressure on signsthat investors are taking more money out of the country. A gauge ofthe dollar rose to a seven-month high versus major currenciesMonday as traders bet that the Federal Reserve may raise borrowingcosts soon. Unlike the yuan selloff earlier this year, whichsparked a global market rout, there's no sense of panic yet aspolicy makers maintain a steady exchange rate against othercurrencies.

“The central bank is tolerating more orderly depreciation of theyuan,” said Gao Qi, a Singapore-based foreign-exchange strategistat Scotiabank. “But it will step in to avoid market panic arisingfrom a sharp yuan depreciation. The 6.8 level is critical in thenear term.”

China will continue to keep the yuan “basically stable at areasonable and equilibrium level,” PBOC Deputy Governor Yi Gangwrote in an article published by the People's Daily Tuesday.There's no basis for a persistent decline in the currency, which ismore stable than other exchange rates in emerging markets,according to Yi, who used to head the nation's foreign-exchangeregulator.

The onshore yuan has weakened 4.2% this year, the most in Asia.It has declined in all but two sessions this month as some analystsspeculated that the central bank has reduced support following theyuan's inclusion in the International Monetary Fund's basket ofreserves on Oct. 1. A net $44.7 billion worth of payments in theChinese currency left the nation last month, according to datareleased by the State Administration of Foreign Exchange. That'sthe most since the government started publishing the figures in2010.

Capital Outflows

“Market sentiment is getting uneasy at the margin due to theoffshore yuan's slide, but in general it's under control andthere's no panic selling,” said Harrison Hu, chief greater Chinaeconomist at Royal Bank of Scotland Group in Singapore. “There arestill tight capital curbs, and investors are used to yuandepreciation, so such a drop is no longer a shock. As long asthere's no obvious panic, the PBOC will tolerate further declines —this is how China makes the exchange rate more flexible.”

The yuan's depreciation in October has been driven mostly bygains in the dollar, and the Chinese currency will be supported ifforeign funds continuously enter China, said Ma Jun, chiefeconomist of the PBOC's research bureau. The odds of a U.S.interest-rate increase by year-end climbed to 71%, from less than10% at the end of June, according to Fed fund futures trading.

Chinese policy makers have downplayed the importance of theyuan-dollar exchange rate, saying they aim to keep the yuan steadyagainst a broad basket of currencies. A Bloomberg gauge mimickingChina Foreign Exchange Trade System's yuan index against 13 majorcurrencies has been little changed around 94 since August afterfalling more than 6% in the previous eight months.

There are few signs that the yuan selloff is becomingdisorderly. By tightening capital controls and taking steps tosupport economic growth, the authorities have dispelled currencyspeculators. The one-month implied volatility in the offshore yuanhas dropped to about 4%, from more than 10% in February, suggestinginvestors expected more muted currency swings. The gap between theoffshore and onshore yuan, a sign of foreign investors speculatingon the Chinese currency, has almost disappeared.

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