SHANGHAI: China’s yuan weakened sharply against a strengthening dollar in morning trade on Friday, touching new 1-1/2-year lows, with Beijing’s doubling down on its zero-COVID policy also weighing on market sentiment.

Both the onshore spot yuan and its offshore counterpart slipped to their softest levels against the dollar since

Nov. 4, 2020. Onshore yuan weakened to a low of 6.6982 per dollar at one point in early trade, not far from the psychologically important 6.7 per dollar, with some market participants saying a breach of the key threshold could prompt further losses.

Its offshore counterpart eased to 6.7338 per dollar. Xing Zhaopeng, senior China strategist at ANZ, said broad dollar strength in light of the hawkish stance adopted by the Federal Reserve piled pressure on the Chinese currency.

“Currently, the yuan is bearing the most depreciation pressure, and such stress may ease in the third quarter of this year,” Xing said, expecting the yuan to trade in a range of 6.6 to 6.8 by end-June.

China’s yuan extends losses, set for worst month in 28 years

Xing and several currency traders noted companies will soon start making dividend payments to overseas shareholders, and such dollar demand could weigh further on the yuan.

Separately, Beijing’s pledge to fight any comments and actions that distort, doubt or deny the country’s COVID-19 response policy also dented market sentiment, traders said.

Lockdowns in dozens of cities across the country, stringent prevention pressures and mobility restrictions have prompted heightened investor concern over wider disruption to economic activity.