SHANGHAI: China’s yuan weakened sharply against a stronger dollar on Wednesday, amid worries about a domestic economic slowdown and further aggressive rate hikes by the Federal Reserve.
Investors are awaiting the Fed’s annual Jackson Hole symposium for more clues about monetary tightening, with Fed Chair Jerome Powell due to speak on Friday.
The People’s Bank of China set the midpoint rate at 6.8388 per dollar prior to market open, firmer than the previous fix at 6.8523.
Yuan extends loss to 2-year lows amid grim China outlook
In the spot market, the yuan opened at 6.8430 per dollar and was changing hands at 6.8624 at midday, 257 pips weaker than the previous late session close.
The yuan is currently hovering around two-year lows against the dollar as Beijing steps up easing measures by cutting policy rates to arrest an economic slowdown.
“USD-CNY has broken above the closely watched 6.80 level. We think this means USD-RMB will trade in a new and higher range of something like 6.75-7.00 for the rest of the year and into the first half of next year,” said HSBC analysts in a note.
China’s economy is struggling to recover as it faces the country’s dynamic zero COVID-19 policy and softening external demand, they wrote.
State media said on Wednesday China’s yuan has no basis for long-term depreciation, as the country’s strong exports should offset a buoyant dollar and hawkish Federal Reserve tightening.
Ken Cheung, Chief Asian FX Strategist at Mizuho Bank pointed to the COVID resurgence and property sector rout that will likely keep China’s growth momentum under pressure.
“The recent drought in Sichuan province just added concern over the energy supply and disruptions on production,” Cheung said.
The US dollar steadied just below recent peaks on Wednesday, as investors waited to hear from the Fed and pondered whether weak US data may slow the pace of rate hikes.
Minneapolis Federal Reserve Bank President Neel Kashkari was the latest official to reiterate the Fed’s focus on controlling inflation ahead of all else, and said on Tuesday his biggest fear was underestimating the extent of price pressures.
The global dollar index rose to 108.666 from the previous close of 108.624. The offshore yuan was trading at 6.8724 per dollar.