Yuan extends loss to 2-year lows amid grim China outlook

SHANGHAI: The yuan weakened to a two-year low against a resurgent dollar on Tuesday as Beijing’s steps to easy policies to revive faltering growth and the Federal Reserve’s relentless tightening streak kept pressure on the Chinese currency.

Analysts expect the yuan to decline further, though there were no signs of panic selling.

The onshore yuan extended its recent decline in morning trade, touching 6.8552 per dollar, the weakest level against the greenback since September, 2020. At midday, the yuan was changing hands at 6.8508.

The yuan has weakened nearly 2% against the dollar since Aug. 15, when China’s central bank unexpectedly reduced two key policy rates to shore up a struggling economy.

On Monday, China again cut benchmark lending rates, highlighting the pressure on growth from several fronts including domestic COVID lockdowns, a property crisis and a slowing global economy.

Yuan touches near 2-year low after China cuts lending benchmarks

“There was no relief in the RMB market despite the positive headlines” on Chinese government’s effort to stabilize the economy, wrote Ken Cheung, strategist at Mizuho Bank, referring to the yuan by its official name.

“Taking into account the gloomy China growth picture and biddish USD, we look for more downside for the RMB in the very near term.”

The dollar index, which measures the value of the greenback against a basket of major currencies, has jumped over the past week, touching the 109 level for the first time in a month.

The dollar is being bolstered by expectations that the Federal Reserve Chair Jerome Powell will reiterate his hawkish tone at the upcoming Jackson Hole symposium due this Friday.

“We look for yuan to remain under pressure as long as China’s zero-Covid strategy is unchanged and weakness in the real estate sector remains,” Maybank analysts wrote in a note.

“In addition, tensions between US and China are also a potential risk to the yuan ahead of G20 Summit, US mid-term elections and (China’s) Party Congress.”

The Party Congress, due later this year, is widely expected to see Chinese President Xi Jingping secure an unprecedented third term. Still, there are few signs of panic selling of the yuan.

The spread between offshore and onshore yuan is around 170 pips, much smaller than a peak of 510 pips in May, suggesting no wholesale dumping of the yuan by foreign investors.