SHANGHAI: The yuan eased against the dollar on Thursday as market sentiment soured after some major global investment banks cut their expectations for China’s economic growth.
Concerns of a potential repeat of Shanghai-like lockdowns in other major Chinese cities also pressured the currency, as the central government appears to be in no mood to ease its tough zero-COVID policy.
Standard Chartered became the latest financial institution to cut its 2022 growth forecast for China, lowering it to 4.1% from 5% to reflect an economic contraction in April due to COVID-19 disruptions.
“Quality of growth in the near term will be affected negatively, in our view,” the bank said in a note.
“On the one hand, China may have to rely on infrastructure investment, which tends to be credit intensive and have a heavy carbon footprint, to jumpstart the economy.”
Analysts at Goldman Sachs lowered their China 2022 growth forecast to 4% from 4.5% a day earlier, also citing COVID-related damage to the economy in the second quarter.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7524 per dollar, weaker than the previous fix of 6.7421.
In the spot market, the onshore yuan opened at 6.7648 per dollar and was changing hands at 6.7597 at midday, 67 pips or 0.1% weaker than the previous late session close.
Some currency traders said the yuan was likely to consolidate on the firmer side of the closely watched 6.8 per dollar level as markets wait for a clearer picture of business resumptions in Shanghai following a weeks-long lockdown.
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“Easing of Shanghai’s restrictions have been underwhelming with a large majority of shops still shut and stringent restrictions hampering operations,” analysts at Maybank said in a note.
“Fears that another major city will be put under a Shanghai-like lockdown continue to undermine sentiment.”
On Thursday, deputy mayor Zhang Wei told a news conference that Shanghai will start to allow more businesses in zero-COVID areas to resume normal operations from the start of June, as the city prepares for the end of lockdown.
But analysts say it could take weeks for business conditions to normalize, and consumption may remain weak even after industrial output bottoms out.
Separately, Premier Li Keqiang was quoted by state media that China has policy room to cope with challenges, as the downward pressure on the economy increases.
By midday, the global dollar index fell to 103.627 from the previous close of 103.81, while the offshore yuan was trading at 6.7729 per dollar.