SHANGHAI: China’s yuan touched a six-week low against the dollar on Friday and looked set for the biggest weekly loss since mid-January, pressured by a broadly stronger greenback as investors bet on more US interest rate hikes.
A slew of recent US economic indicators, including unemployment data and monthly producer prices, have suggested that the world’s largest economy was resilient and could keep interest rates higher for longer.
A more hawkish US monetary policy should benefit the dollar and pressure other non-dollar currencies like the yuan.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8659 per dollar, 140 pips or 0.2% lower than the previous fix of 6.8519, the weakest guidance since Jan. 6.
In the spot market, the onshore yuan opened at 6.8660 per dollar and eased to a low of 6.8778 at one point, the weakest level since Jan. 6.By midday, it was changing hands at 6.8751, 201 pips softer than the previous late session close.
If the spot yuan finishes the late night session at the midday level, it would have lost 0.86% to the dollar for the week, the biggest weekly drop in over a month.
China’s yuan slips to over 1-month low on high US inflation
“The pair (USD/RMB) was lifted by broader USD strength on stronger-than-expected PPI and hawkish Federal Reserve (comments),” analysts at Maybank said in a note, forecasting the 50-day moving average of 6.8550 should provide some support for now.
Currency traders said the yuan was tracking broad dollar strength in morning deals, and that they have had rising queries for greenback demand recently from corporate clients who need to make payments for their orders. Such dollar buying also piled pressured the local unit.
Separately, investors will shift their attention to the monthly fixing of benchmark lending loan prime rates (LPR) due next Monday for more clues on China’s monetary policy stance.
“While we believe accommodative monetary policy easing will continue in near-term, the likelihood of rate cut is slim, given the rising inflation pressure,” Citi analysts said in a note.
“Indeed, the PBOC kept one-year medium-term lending facility (MLF) rate unchanged in February. Therefore, we expect no change on one-year and five-year LPR this month.”
China’s central bank ramped up medium-term liquidity injections as it rolled over maturing policy loans this week, while it kept the interest rate unchanged, in line with market expectations.
By midday, the global dollar index rose to 104.275 from the previous close of 103.856, while the offshore yuan was trading at 6.886 per dollar.
The one-year forward value for the offshore yuan traded at 6.7189 per dollar, indicating a roughly 2.49% appreciation within 12 months.