SHANGHAI — China’s yuan fell to a
one-year low against the dollar on Monday, extending losses
after posting its worst week since 2015, as a worsening economic
growth outlook drove investor concern that the currency had more
room to fall.
Sentiment also took a knock on fears that strict lockdown
measures will spread to Beijing, after the capital city
required everyone living or working in Chaoyang district to take
three COVID-19 tests this week and put more than a dozen
buildings under lockdown.
Lockdowns in more than a dozen cities across the country,
including the financial hub of Shanghai, have heightened worries
over wider disruption to economic activity and raised some
doubts whether China will be able to reach this year’s growth
target of about 5.5%.
“Last Friday’s sharp CNY depreciation may mark an inflection
point for further CNY depreciation, (should) market continue to
focus on the negative yield spreads of China and near-term weak
economic performance,” said Li Lin, head of global markets
research Asia at MUFG Bank, revising down her yuan forecast to
6.55 by the end of the second quarter from 6.45 previously.
The People’s Bank of China (PBOC) set the midpoint rate
on Monday at 6.4909 per dollar prior to market open,
the weakest level since August 2021 and not far from Reuters’
estimate of 6.4873.
In the spot market, both onshore and offshore yuan
, breached the key 6.55 per dollar, touching
their weakest levels since April 2021, before trading at 6.5412
and 6.5715, respectively, as of midday.
Several traders said the pace of yuan weakening slowed after
some state-owned Chinese banks, which usually trade on behalf of
the central bank in the foreign exchange market, offered small
amounts of dollars in the onshore market at around 6.55 per
Authorities, though, have yet to show discomfort about the
rapid losses in the yuan, which has weakened by around 2.6%
since last Monday.
Guan Tao, global chief economist at BOC International and a
former senior official at China’s foreign exchange regulator,
said the current round of yuan depreciation was driven by the
offshore market rather than by guidance from the official
“The recent yuan decline was not the cause but the result of
foreign investors’ reduction in yuan assets … Once the market
confidence is restored, foreign capital may return at any time,
and the yuan will regain support,” he said.
Meanwhile, some traders said they are seeing growing demand
for dollars from their corporate clients, who are betting on
further declines in the Chinese currency.
The dollar’s strength – against the backdrop of aggressive
U.S. Federal Reserve tightening, the vanishing Chinese yield
advantage and growing economic pressures – also has weighed on
“Looking ahead, the next target would be the March 2021 high
near 6.5795,” Win Thin, global head of currency strategy at
Brown Brothers Harriman, said in a note.
“With monetary policy divergence with the Fed set to widen,
we think this yuan move still has legs,” he added, noting the
yield spread between the world’s two largest economies would
continue to move in the dollar’s favor.
The yuan market at 0407 GMT:
Item Current Previous Change
PBOC midpoint 6.4909 6.4596 -0.48%
Spot yuan 6.5412 6.5016 -0.61%
Divergence from 0.77%
Spot change YTD -2.85%
Spot change since 2005 26.53%
Item Current Previous Change
Thomson 102.86 103.6 -0.7
Dollar index 101.233 101.22 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
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.5715 -0.46%
Offshore 6.6567 -2.49%
*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 Andrew Galbraith; Editing by