Yuan slides to three-week low as Iran war supports dollar

HONG KONG: China’s yuan slid against the US dollar on Monday, and was headed for its first monthly decline since July, with the greenback benefiting from safe-haven flows as the Iran war extended into a second month.

 The yuan weakened as far as 6.9211 against the US dollar, a level not seen since March 9, and was changing hands at 6.9182 by 0259 GMT.

 The currency is now down 0.9% against the dollar this month, set to snap a seven-month-long rally.

 Its offshore counterpart traded at 6.924 yuan per dollar , down about 0.04% in Asian trade.

 The yuan could stay under pressure in the near term as the Middle East conflict continues to drive up oil prices and dollar demand, analysts at Bank of America said in a note.

 “We expect USDCNY to consolidate around recent range as DXY gets supported, but remain constructive on CNY medium-term on robust exports,” they said.

Markets are on edge with no signs of slowing in the war, which has blocked oil and gas shipments through the Strait of Hormuz and spread economic pain across the world.

Pakistan said on Sunday it was preparing to host “meaningful talks” in the coming days aimed at ending the conflict, while Tehran accused Washington of preparing a land assault as the US sends more troops to the region.

 Meanwhile, Yemeni Houthis launched their first attacks on Israel over the weekend, widening the war.

The US dollar index, which measures the greenback’s strength against a basket of six currencies, was steady on Monday and poised for its strongest monthly gain since July. Oil prices extended gains on Monday with Brent crude futures headed for a record monthly rise.

 Prior to the market opening, the People’s Bank of China set the yuan midpoint rate at 6.9223 per dollar, its weakest since March 2 and 18 pips weaker than a Reuters’ estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

Still, the yuan outperformed most other emerging market currencies for the month, supported by factors such as strong exports and a stable fixing, analysts at CICC said in a note.

“The pent-up release of settlement demand may provide effective support for the yuan exchange rate going forward,” they said.