SHANGHAI: China’s yuan wobbled around five-month lows as it weakened again on Tuesday, with hawkish comments from a US central banker propping up the dollar though traders see limited downside for the local currency from current levels.
Traders say China’s weak recovery has been largely priced in, and also noted the pledge by the People’s Bank of China (PBOC) to keep market stable, which should temper any large scale selling of the yuan.
The onshore yuan was changing hands around 7.0500 at midday, 0.27% lower than the previous late session close, after the PBOC set a weaker midpoint rate.
Barring an afternoon rebound, the yuan is on track to close at its weakest level in more than five months.
The dollar index edged up overnight after St. Louis Fed President James Bullard said the Federal Reserve may still need to raise its benchmark interest rate by another half-point this year.
Bullard’s hawkish remarks kept the dollar well bid, with markets expecting US rates to stay higher for longer.
Yuan sentiment was not helped by geopolitical tensions, as Russia’s Foreign Ministry said Group of Seven nuclear “rhetoric” has the sole aim of exerting psychological, military and political pressure on Moscow and Beijing.
China’s yuan plumbs fresh Dec lows after weak PBOC fixing
Yet, overall, traders don’t expect any panic selling of the yuan.
Guo Lei, economist at GF Securities, said there is no basis for sustained, rapid yuan depreciation.
“The US economy cannot stand too radical rate hikes, so interest rate differentials won’t give sustained support to the dollar,” he wrote.
Furthermore, “China’s economic slowdown has been fully priced in by the forex market.”
Traders also expect the PBOC to intervene if the yuan falls too rapidly, noting its pledge over the weekend to curb speculation and calls to key participants to keep the foreign exchange market stable.
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