China's yuan slides to one-month low as dollar extends gains
- The onshore yuan touched 6.8004 per dollar in morning trade, the weakest level in more than a month
HONG KONG: China’s yuan slid to a one-month low against the US dollar on Wednesday, pressured by a stronger greenback as investors positioned for potential Federal Reserve rate hikes.
The US dollar reached a fresh 13-month high against major currencies on risk-averse sentiment amid a tech selloff and expectations of US rate hikes later this year.
The onshore yuan touched 6.8004 per dollar in morning trade, the weakest level in more than a month.
The currency is on track for six days of losses against the greenback.
Its offshore counterpart also eased to a one-month low.
In the short term, people are worried about Fed hikes and that higher interest rates could have a bigger impact on the yuan, said Kevin Liu, chief offshore China and overseas strategist at CICC Research.
The dollar has been supported as markets adjusted expectations for a more hawkish stance from the Fed under new Chairman Kevin Warsh.
The selloff in semiconductor stocks also made the dollar, which is seen as a safe-haven currency, stronger.
Before the market opened, the People’s Bank of China set the yuan’s midpoint rate at 6.8195 per dollar, its weakest since June 8 and 282 pips weaker than a Reuters estimate. The spot yuan is allowed to trade 2% on either side of the fixed midpoint each day.
Despite the pressure from the dollar, analysts believe the yuan will continue to outperform among Asian currencies due to the currency’s resilience in the wake of the US-Israeli war on Iran and China’s robust exports.
The yuan is down 0.5% against the dollar this month, but is 2.9% firmer this year.
“The main support for the currency since last year has been exports, the broad direction should remain unchanged, but the pace may be affected by the Federal Reserve,” Liu said.
Barclays analysts also expect the pace of the yuan’s appreciation to slow in the coming months, citing policy pushback from the central bank through weaker-than-expected fixings, as well as slower dollar conversions by exporters.
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