SHANGHAI — China’s yuan slipped to
nearly 17-month lows against the U.S. dollar on Thursday as
widening COVID-19 lockdowns put more pressure on the slowing
economy, and as the greenback continued to surge.
The Bank of Japan on Tuesday added fuel to the fire,
propelling the dollar higher as it said it would keep interest
rates ultra-low and maintain massive stimulus. The dollar-yen
pair rose to a 20-year high and the 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
COVID-19 mass testing aimed at averting a Shanghai-like lockdown
that has hobbled economic activity in the country’s financial
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.
Onshore spot yuan opened at 6.5622 per dollar and
weakened as far as 6.5919, its softest level since Nov. 30,
By around midday it had recovered some ground to change
hands at 6.5895 per dollar, 280 pips or 0.4% weaker than
Wednesday’s late session close.
The yuan has fallen nearly 4% against the 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 dollar,
its weakest since Nov. 9, 2020. By midday it was trading at
6.6336 per 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 CNH market,” he said.
Ahead of a steep Federal Reserve rate hike expected next
month and as a poor outlook for the yen and euro keep the dollar
aloft, traders said the yuan has more room to fall in the near
Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan’s value, traded
“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
The State Council has vowed to tackle bottlenecks in supply
chains affected by COVID, state media reported on Wednesday.
The yuan market at 4:29AM GMT:
Item Current Previous Change
PBOC midpoint 6.5628 6.5598 -0.05%
Spot yuan 6.5895 6.5615 -0.42%
Divergence from 0.41%
Spot change YTD -3.56%
Spot change since 2005 25.60%
Item Current Previous Change
Thomson 102.89 103.06 -0.2
Dollar index 103.438 102.954 0.5
*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 6.6336 -0.66%
Offshore 6.7162 -2.28%
*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 Andrew Galbraith in Shanghai and Xiao Han in
Beijing; Editing by Kim Coghill)