SHANGHAI: China’s yuan eased further, touching a more than 19-month low against the dollar on Friday and breaching a key threshold, and looked set for the sixth straight weekly losses.
The Chinese currency has lost more than 6% against a strengthening dollar over the past four weeks, a sudden, deep plunge for the yuan, which has long been tightly managed and usually moves within thin ranges.
“We feel the Chinese authorities are comfortable in letting the CNY weakening further, so long as the depreciation remains orderly,” said Becky Liu, head of China macro strategy at Standard Chartered. “FX policy appears to be one of the options to alleviate growth pressure, via alleviating exports pressure.”
Liu noted that China is facing increasingly downward growth pressure, and sees little room to alter its zero-COVID policy, while domestic monetary policy easing is constrained by a hawkish Federal Reserve.
China’s yuan hits more than 19-month low against high-flying greenback
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at a fresh low of 6.7898 per dollar, 606 pips or 0.9% weaker than the previous fix, 6.7292, but 57 pips firmer than Reuters’ estimate of 6.7955.
In the spot market, the onshore yuan opened at 6.7900 per dollar, and quickly weakened past 6.8 to a low of 6.8150, the softest level since Sept. 30, 2020.
By midday, it was changing hands at 6.7925, 53 pips weaker than the previous late-session close.
Currency traders said absence of discomfort among the authorities over the recent yuan weakness, other than firmer-than-expected midpoint settings, have encouraged some investors to test new lows in the currency.
“While likely related to portfolio outflows, the move is getting compounded by the PBOC’s hands-off stance, which is adding to the local USD buying frenzy,” said Stephen Innes, managing partner at SPI Asset Management.
The rapid losses in the yuan also dragged down its value against major trading partner, with the CFETS yuan basket index falling to 100.8, the lowest level since November 2021, and down 1.63% this year, according to Reuters calculations based on official data.
Xing Zhaopeng, senior China strategist at ANZ, said the authorities might want to nudge the yuan’s basket index to a more comfortable level, in a bid to protect China’s export competitiveness.
“My feeling is that the goal is to cap the basket index below 98,” Xing said, noting the index had usually hovered in a range of 92 to 98 in the last few years.
By midday, the global dollar index fell to 104.64 from the previous close of 104.851, while the offshore yuan was trading at 6.8108 per dollar.
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