The Chinese yuan fell to 6.7437 per dollar on Thursday, its weakest level in a year.

Hannah Anderson, Global Market Strategist at JP Morgan Asset Management, says the weakness on Thursday appears to reflect a shift in policy from the People’s Bank of China.

China's State Administration of Foreign Exchange says it needs to assess the impact of trade tensions with the US.

The Chinese yuan is continuing to unravel, falling to a one-year low against the greenback on Thursday.

The USD/CNY, or onshore traded yuan, currently sits at 6.7437, the highest level since July last year. Offshore traded yuan, or CNH, is even weaker than the onshore rate, sitting at 6.7830, up 0.58% for the session. A higher number indicates a weaker yuan.

As opposed to being driven by diverging monetary policy outlooks, narrowing yield differentials or trade war concerns, Hannah Anderson, Global Market Strategist at JP Morgan Asset Management, says the weakness today appears to reflect a shift in policy from the People’s Bank of China (PBoC).

“Earlier this year, yuan weakness reflected moderating Chinese economic fundamentals versus the majority of its trading partners, a strong USD, and narrowing yield differentials between it and the US,” she said.

“In contrast, today’s weakness seems to reflect a more explicit policy decision.

“After signaling it would accept more volatility in the currency, the PBoC has followed up by lowering the daily fixing rate.

On Thursday, the PBoC set the midpoint of the USD/CNY’s daily trading range at 6.7066, up from 6.6914 a day earlier. It was the weakest fixing level this year.

“[The fixing] signals the PBoC is not defending any line in the sand for the exchange rate and is comfortable with gradual yuan depreciation,” Tommy Xie, an economist at Oversea-Chinese Banking Corporation, told Bloomberg.

Speculation over further monetary policy easing from the PBoC may also be a factor behind the renewed weakness with China Business News reporting policy makers have made efforts to encourage bank loans and investment in lower-rated corporate debt.

Earlier in the session, China’s State Administration of Foreign Exchange, or SAFE, said China currency remains stable and strong, adding China’s economic fundamentals remain sound and offer high returns for offshore investors.

The FX regulator said it needs to assess the impact of trade tensions with the United States on cross-broader capital flows. Despite mounting concerns from traders, it said it has ample FX reserves to cope with the challenge presented and was able to keep FX markets generally stable.

Both Anderson and Xie believe the path of least resistance for the yuan looking ahead is for further weakness.

“More weakness seems warranted given all of the factors, but Chinese authorities will likely prevent the currency from moving too sharply in any direction,” Anderson said.

Xie told Bloomberg that the “currency may see another wave of selling pressure ahead”.