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Reuters

China’s yuan slipped to nearly a 17-month lows against the US dollar on Thursday as widening coronavirus lockdowns put more pressure on the slowing economy, and as the US dollar continued to surge.
The Bank of Japan on Tuesday added fuel to the fire, propelling the US dollar higher as it said it would keep interest rates ultra-low and maintain massive stimulus.
The US dollar-yen pair rose to a 20-year high and the US dollar index jumped following the announcement.
The yuan’s slump followed two days of relative stability after the People’s Bank of China (PBOC) on Monday cut banks’ foreign exchange reserve requirements in a move to put a floor under recent steep falls.




It also comes as officials in Beijing embarked on more mass testing aimed at averting a Shanghai-like lockdown that has hobbled economic activity in the country’s financial hub.
With few other signals that the PBOC is uncomfortable with a softer yuan, market participants remain uncertain whether the bank has a clear “red line” for depreciation.
On Thursday, the PBOC once again set the yuan’s daily midpoint fixing close to market forecasts, at 6.5628 per dollar. That was its weakest since April 2, 2021.
The onshore spot yuan closed at 6.6115 per US dollar, its softest level since November 13, 2020.
Capital flight puts China on alert for ‘spillover effects’ from US rate hikes
The yuan has fallen by nearly 4 per cent against the US dollar this month, putting it on track for what could be its biggest monthly drop since China unified official and market exchange rates in 1994.
The offshore yuan weakened to 6.6371 per US dollar, its weakest since November 9, 2020. By midday it was trading at 6.6336 per US dollar, from a close of 6.5887 on Wednesday.
Ken Cheung, chief Asian FX strategist at Mizuho, said that a wide gap between the onshore and offshore yuan indicated more bearish sentiment offshore, adding that thin market liquidity due to the Shanghai lockdown could exacerbate any spillover in negative sentiment into the onshore market.
If the situation continued, the PBOC would be tempted to take action to anchor the [offshore] market
Ken Cheung
“If the situation continued, the PBOC would be tempted to take action to anchor the [offshore] market,” he said.
Ahead of a steep US Federal Reserve rate increase expected next month and as a poor outlook for the yen and euro keep the US dollar aloft, traders said the yuan has more room to fall in the near term.
Offshore one-year non-deliverable forwards contracts, considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.7162.
Yuan pressure to ease, but China’s virus battle still threatens capital flow
“The euro and yen are too weak. The dollar index has to rise more,” said a trader at a foreign bank.
The global dollar index rose to 103.438 from the previous close of 102.954.
In the face of increasing economic pressures, traders and analysts continue to await a meeting this week of the Politburo, China’s highest decision-making body, for more signs of economic support.
The State Council has vowed to tackle bottlenecks in supply chains affected by the coronavirus, state media reported on Wednesday.
I don’t think this is an end to recent yuan depreciation
Bo Zhuang
Meanwhile, seven banks have slashed their yuan forecasts with the currency headed for its biggest monthly decline since China unified its exchange market in 1994.
“I don’t think this is an end to recent yuan depreciation,” said Bo Zhuang, senior sovereign analyst at Loomis Sayles Investments Asia in Singapore, who raised concerns of a possible hard landing should a lockdown grip Beijing.
He forecasts the yuan weakening to 6.85 per US dollar this year, with a potential to hit 7 next year.
Yuan pressure to ease, but China’s virus battle still threatens capital flow
Standard Chartered and Credit Agricole forecast the yuan at 6.7 by the second quarter while Bank of America and TD Securities see the currency falling to 6.80 by the end of the year on worsening terms of trade.
“The yuan’s outlook is heavily dependent on the evolving Covid and growth situation in China,” said Alvin Tan, head of Asia currency strategy at the Royal Bank of Canada in Hong Kong.
“It makes sense to use controlled currency depreciation as a relief valve for the economy if growth risks were to escalate.”
Additional reporting by Bloomberg


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China’s yuan slips to 17-month low against US dollar as economic pressures mount

With few other signals that the PBOC is uncomfortable with a softer yuan, market participants remain uncertain whether the bank has a clear “red line” for depreciation. Photo: AP

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The yuan has fallen by nearly 4 per cent against the US dollar this month, putting it on track for what could be its biggest drop since China unified exchange rates in 1994
The Bank of Japan on Tuesday added fuel to the fire, propelling the US dollar higher as it said it would keep interest rates ultra-low and maintain massive stimulus



China’s yuan has fallen by nearly 4 per cent against the US dollar this month, putting it on track for what could be its biggest drop since China unified exchange rates in 1994.
