SHANGHAI: China’s yuan weakened past a key threshold to a near one-week low against the dollar on Thursday, pressured by investor worries about a prolonged economic slowdown after Premier Li Keqiang held a rare high-profile meeting to support the economy.
China will “strive to drive the economy back onto a normal track” in the second quarter and stem rising unemployment, the official Xinhua news agency quoted Li as saying on Wednesday.
Extended COVID-19 lockdowns in dozens of cities, including commercial centre Shanghai, have jolted production and consumption. China’s economy weakened sharply in April and the nationwide survey-based jobless rate climbed to 6.1%, the highest since February 2020.
“Policymakers in China are in greater urgency to support the economy, under the backdrop of very weak activity growth, anemic recovery month-to-date in May, and rising unemployment rates,” analysts at Goldman Sachs said in a note.
“Barring another major wave of COVID resurgence, we do expect growth to show a solid rebound in June and Q3 this year under policy support. However, growth downward pressures remain high,” they added.
China’s yuan slips as weak growth outlook weighs
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.6766 per dollar, 216 pips or 0.32% weaker than Wednesday’s fix at 6.6550.
The onshore yuan opened at 6.6908 per dollar in the spot market, and quickly weakened past the psychologically important 6.7 per dollar level. By midday, it was changing hands at 6.7190, 250 pips or 0.37% weaker than the previous late session close.
Currency traders said persistent market worries over the economic slowdown and China’s battle to contain COVID-19 should continue to guide the yuan in the short term.
“Markets will pay close attention to any relief measure,” said a trader at a foreign bank.
Separately, some analysts also pointed out that overseas-listed Chinese companies may start making dividend payments to foreign investors soon. Widespread COVID lockdowns in many cities, including Shanghai, have delayed some of those transactions.
“A sharp rise in outbound dividend payments from June will likely add to outflow pressure and support higher USD/CNY levels in the near term,” analysts at Standard Chartered said in a note.
While the bank expects such dividend payments to reach a record high of $93 billion this year, up 3% from 2021, it maintains its forecast for the yuan to trade at 6.70 per dollar by the end of June, before finishing the year at 6.60.
By midday, the global dollar index rose to 102.084 from the previous close of 102.056, while the offshore yuan was trading at 6.7349 per dollar.
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