China’s yuan ends at 2-year low on dollar strength, COVID resurgence
SHANGHAI — China’s yuan ended the domestic trading session at a more than two-year low against the dollar on Monday, pressured by broad greenback strength in global markets and a resurgence of COVID-19 infections across the country.
Worries over widening disruptions to economic activity resurfaced after China’s southern tech hub of Shenzhen said it would adopt tiered anti-virus restrictions starting on Monday, while the southwestern metropolis of Chengdu announced an extension of lockdown-related curbs.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8998 per dollar, 81 pips weaker than the previous fix of 6.8917.
Monday’s fixing was 155 pips firmer than the Reuters estimate of 6.9153, marking the ninth straight trading day that the PBOC set firmer-than-expected official guidance, and prompting many market watchers to speculate there was an official effort to rein in excess yuan weakness.
Tommy Xie, head of Greater China research at OCBC Bank, said the recent firmer-than-expected fixings reinforced “the view that China has a strong incentive to slow down the pace of RMB depreciation as part of sentiment management amid the rising uncertainty from the property mess and COVID situation.”
Liu Guoqiang, vice governor of the PBOC, told a briefing on Monday that China’s FX market is operating normally at the moment, with orderly cross-border flows. He did not expect one-way yuan bets in the market.
The onshore yuan finished the domestic trading session at 6.9366 per dollar, the weakest such close since Aug. 17, 2020, and down 351 pips or 0.5% from the previous late night close of 6.9015.
Several currency traders said the yuan decline in morning deals was a reaction to strength in the dollar, which hit a two-decade high against its major trading partners.
Investment houses have cut their yuan forecasts as its fall against the dollar accelerated, with some expecting a breach of the 7-per-dollar milestone before next month’s politically sensitive Party Congress despite authorities’ efforts to slow the slide.
“Pressure for CNY likely remains in near term, we are seeing USD/CNY to reach 7.00 in the near term,” said Li Lin, head of global markets research for Asia at MUFG Bank.
Li noted that August trade data due on Wednesday could serve as one of the market movers for the yuan this week.
(Reporting by Winni Zhou and Brenda Goh; Editing by Edmund Klamann and Angus MacSwan)