SHANGHAI: China’s yuan eased against the dollar on Monday, as COVID-19 cases in the country’s commercial hub continued to weigh on sentiment ahead of key policy meetings at home and abroad.
Investors remain jittery about possible broad disruptions to economic activity after Shanghai ordered residents across nine of the city’s districts and some smaller areas to do COVID-19 tests during July 26-28, due to sporadic cases.
“On the prospect of worsening sentiment due to the lingering COVID situation in China and uncertainty surrounding China’s property sector, the yuan will likely remain under pressure in the near term,” said Li Lin, head of global markets research for Asia at MUFG Bank.
Li was referring to a recent mortgage boycott, which was prompted by a growing number of homebuyers who refused to make payments on their loans for unfinished apartments across the country.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7543 per dollar, 21 pips weaker than the previous fix 6.7522. In the spot market, the onshore yuan opened at 6.7554 per dollar and was changing hands at 6.7560 at midday, 42 pips weaker than the previous late session close.
Traders said the yuan was likely to face downside pressure this week as the dollar may stay strong in the run-up to the Federal Reserve’s policy meeting on July 26-27, when it is expected to raise interest rates by another 75 basis points.
Separately, in China, a Politburo meeting this week is also in focus, where a top decision-making body will gather to discuss economic policies for the rest of the year.
“We do not think Beijing will launch an all-out campaign to meet the annual growth target of ‘around 5.5%’, which is clearly out of reach now,” said Lu Ting, chief China economist at Nomura.
“The focus of policymakers has now shifted to fiscal policy and the property sector since the reserve requirement ratio (RRR) cut in April, and this shift will likely continue in H2.”
By midday, the global dollar index fell to 106.632 from the previous close of 106.73, while the offshore yuan was trading at 6.759 per dollar.
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