SHANGHAI: China’s yuan eased slightly against the dollar on Monday, after a weaker-than-expected midpoint fixing and on worries rising domestic COVID-19 cases will hit consumption and supply chains.
The currency’s losses were partly mitigated as Chinese banks kept benchmark interest rate for corporate and household lending unchanged for a second straight month. Analysts, however, say the case for monetary stimulus is building amid mounting external risks to an already slowing economy.
Prior to market opening, the People’s Bank of China set the midpoint rate at 6.3677 per dollar, 252 pips weaker than the previous fix of 6.3425, and 93 pips softer than Reuters’ estimate of 6.3584.
The sustained weakening bias in the daily midpoint setting seen in recent weeks suggested that the authorities were reluctant to see fast rises in the yuan, some currency traders said, adding they now expect the yuan could instead test its 200-day moving average of 6.4.
In the spot market, onshore yuan opened at 6.3589 per dollar and was changing hands at 6.3655 at midday, 40 pips weaker than the previous late session close.
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Traders said investors were in a bearish mood as various cities and provinces across the country have been battling coronavirus outbreaks, which could disrupt an economy already facing headwinds from an uncertain global recovery and a property downturn.
“We believe the cost of zero-COVID strategy will rise significantly as its benefits decline, which makes it much harder for Beijing to achieve its ‘around 5.5%’ GDP growth target for 2022,” said Lu Ting, chief China economist at Nomura.
Lu expects the PBOC to cut policy rates by a moderate 10 basis points in April and cut banks’ reserve requirement ratio (RRR) by 50 bps over the next couple of months.
China’s financial hub of Shanghai reported on Monday a record daily surge in local COVID-19 infections as authorities scrambled to test residents and rein in the Omicron variant, while the Disney resort closed until further notice.
At midday, the global dollar index rose to 98.285 from the previous close of 98.233, while the offshore yuan was trading at 6.3771 per dollar.