China's yuan eases, traders see growing chance of PBOC easing next week

SHANGHAI: China's yuan extended losses against a buoyant dollar on Friday and looked set for a marginal weekly losses, dragged lower by the prospect of more aggressive US Federal Reserve monetary tightening.

Sentiment was also weighed down by investor worries over the economic damage caused by COVID-19 lockdowns in many parts of the country as the country's financial hub of Shanghai continued to battle its worst outbreak.

The greenback hit a new near two-year high against a basket of currencies after the minutes of the Fed's March meeting showed many officials were prepared to raise interest rates in 50-basis-point increments in coming months.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at a one-week high of 6.3653 per dollar, 6 pips firmer than the previous fix 6.3659.

In the spot market, onshore yuan opened at 6.3631 per dollar and was changing hands at 6.3628 at midday, 21 pips weaker than the previous late session close.

"We estimate that Shanghai will suffer a 6% GDP loss if the current lockdowns persist in this month alone; that's a 2% GDP loss for the whole of China," Iris Pang, chief economist for Greater China at ING said in a note.

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Pang and other economists now expect Beijing to take imminent monetary easing measures to prop up the economy and make sure China remains on track to hit its around 5.5% growth target for this year.

"China's virus prevention and lockdown measures continue to have a negative impact on the economy and the job market, and markets expect the authorities to cut interest rates or take other easing measures as early as next week," economists at OCBC Wing Hang Bank said in a note.

Pang expects the PBOC to cut banks' reserve requirement ratio (RRR) for small and medium enterprises and to lower interest rates as early as this month.

A batch of 150 billion yuan ($23.58 billion) worth of medium-term policy loan is due to mature next Friday, and traders expect the PBOC to lower the borrowing rate when rolling it over.

By midday, the global dollar index rose to 99.843 from the previous close of 99.751, while the offshore yuan was trading at 6.3661 per dollar.