SHANGHAI: China’s yuan touched a more than two-year low against the dollar on Monday, pressured by broad greenback strength in global markets and a resurgence of COVID-19 infections across the country.
Worries over widening disruptions to economic activity resurfaced after China’s southern tech hub of Shenzhen said it would adopt tiered anti-virus restrictions starting on Monday, while the southwestern metropolis of Chengdu announced an extension of lockdown-related curbs.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8998 per dollar, 81 pips weaker than the previous fix of 6.8917.
Monday’s fixing was 155 pips firmer than the Reuters estimate of 6.9153, marking the ninth straight trading day that the PBOC set firmer-than-expected official guidance, and prompting many market watchers to speculate there was an official effort to rein in excess yuan weakness.
Tommy Xie, head of Greater China research at OCBC Bank, said the recent firmer-than-expected fixings reinforced “the view that China has a strong incentive to slow down the pace of RMB depreciation as part of sentiment management amid the rising uncertainty from the property mess and COVID situation.”
In the spot market, onshore yuan opened at 6.9155 per dollar and fell to a low of 6.9350, the weakest level since Aug. 17, 2020. By midday, it was changing hands at 6.9319, 304 pips softer than the previous late-session close.
China’s yuan extends weakness, but persistently firmer fixing checks losses
Several currency traders said the yuan decline in morning deals was a reaction to strength in the dollar, which hit a two-decade high against its major trading partners.
Markets also heatedly discussed whether the rising dollar and domestic economic slowdown would pressure the yuan to hit the psychologically important 7-per-dollar level.
“Pressure for CNY likely remains in near term, we are seeing USD/CNY to reach 7.00 in the near term,” said Li Lin, head of global markets research for Asia at MUFG Bank.
Li noted that August trade data due on Wednesday could serve as one of the market movers for the yuan this week.
By midday, the global dollar index rose to 109.97 from the previous close of 109.534, while offshore yuan was trading at 6.9429 per dollar.
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