Yuan touches near 2-year low after China cuts lending benchmarks

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SHANGHAI — China’s yuan slumped to a near

two-year low against the dollar on Monday, as Beijing stepped up

easing measures to arrest an economic slowdown at a time the

U.S. Federal Reserve was set to continue its aggressive monetary

tightening campaign.

Widening policy divergence, along with worries over weaker

economic fundamentals, raised the risks of capital outflows and

yuan depreciation, currency traders said.

Yuan traded in both onshore and offshore

quickly slipped after China cut its benchmark lending rate and

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lowered the mortgage reference by a bigger margin, adding to

last week’s easing measures, as Beijing boosts efforts to revive

an economy hobbled by a property crisis and a resurgence of

COVID cases.

The onshore yuan opened at 6.8202 per dollar and

touched a low of 6.8308, the weakest level since Sept. 25, 2020.

By midday, it was changing hands at 6.8243, 73 pips weaker than

the previous late session close.

Its offshore counterpart fell to a near two-year low of

6.8520 before trading at 6.8394 at noon.

Traders said the gap between onshore and offshore widened

further to 151 pips in morning deals, a sign that depreciation

expectations might have picked up as the offshore yuan trades

more freely and better reflects market fundamentals.

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“Overall, the RMB depreciation is the reflection of monetary

policy divergence, interest rate differential and market pricing

of bleak China growth outlook, instead of a cause of emerging

market crisis,” said Ken Cheung, chief Asian FX strategist at

Mizuho Bank.

“We reckon that the People’s Bank of China (PBOC) will

tolerate more RMB depreciation at this stage.”

Prior to market opening, the PBOC set the midpoint rate

at 6.8198 per dollar, 133 pips or 0.2% weaker than

the previous fix of 6.8065, the softest since Sept. 28, 2020.

“The unexpected slowdown in the economy in July was rather

broad based and the PBOC could remain in easing mode as long as

the economy is under pressure from zero-COVID strategy, weak

property sector and more recently, power crunch in Sichuan and

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Chongqing,” analysts at Maybank said in a note.

The yuan market at 0401 GMT:


Item Current Previous Change

PBOC midpoint 6.8198 6.8065 -0.20%

Spot yuan 6.8243 6.817 -0.11%

Divergence from 0.07%


Spot change YTD -6.88%

Spot change since 2005 21.28%


Key indexes:

Item Current Previous Change

Thomson 0.0


CNH index

Dollar index 108.135 108.169 0.0

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2 percent from official midpoint rate it sets each



Instrument Current Difference

from onshore

Offshore spot yuan 6.8394 -0.22%


Offshore 6.7556 0.95%




*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.


(Reporting by Winni Zhou and Brenda Goh

Editing by Shri Navaratnam)



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