SHANGHAI: China’s yuan weakened on Monday to a near two-week low against the dollar, as investor sentiment soured on heightened worries about economic disruption from COVID-19 after Shanghai took fresh lockdown measures.
The Chinese financial hub of 26 million people launched a planned two-stage lockdown, closing bridges and tunnels, and limiting highway traffic as it scrambled to combat a surge of local infections.
Both onshore and offshore yuan sank to their weakest levels since March 15, with many currency traders eyeing the psychologically critical level of 6.4 as the next target.
“The tough measures suggested that the virus conditions were quite serious and dragged the yuan lower,” said a trader at a foreign bank.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.3732 per dollar, 7 pips firmer than the previous fix of 6.3739, but 13 pips weaker than Reuters’ estimate of 6.3719.
By midday, the onshore yuan was changing hands at 6.3748, 85 pips softer than the previous late session close, while its offshore counterpart traded at 6.3906.
“Concerns about (the impact of) China’s zero-COVID strategy on production, as well as already anaemic consumption, weighed on yuan sentiment, prompting calls for monetary policy to support credit and stabilise growth,” Maybank analysts said in a note.
The currency weakness came as major economies, including the United States, are set to tighten monetary policy, a move that would hamper China’s yield advantage and trigger risks of capital outflow.
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