China’s yuan slides on hawkish Fed, but weakening Asian FX threaten export edge
- The yuan breached 6.9 per US dollar for the first since August 2020 on Monday, after hawkish comments by the Federal Reserve
- But the yuan’s depreciation is mild compared to other major currencies in the Asia-Pacific, including the yen, won and baht this year
Although the yuan hit a two-year low against the US dollar on Monday, other Asian currencies have shown a sharper decline, which could add to regional financial risks and hurt China’s export competitiveness, analysts say.
Since the People’s Bank of China unexpectedly cut two key interest rates on August 15, then trimmed another pair of lending rates last week, the yuan has lost about 2,000 basis points against the dollar.
Chinese policymakers are increasingly diverging from their US counterparts, who were stepping up monetary tightening to combat inflation.
The exchange rate of the onshore yuan rebounded 230 pips from the previous close to 6.8980 on Tuesday. A pip is the smallest unit of a currency in dollar terms, equal to one-hundredth of one cent. The onshore yuan is allowed to trade 2 per cent either side of the daily reference rate.
