China’s yuan extends losses, nears key level despite firmer-than-expected fix

SHANGHAI: China’s yuan extended losses against the dollar in early trade on Wednesday, nearing the psychologically important level of 7 per dollar, even as the central bank has taken steps recently seen as aimed at arresting the yuan’s rapid decline.

The central bank continued to set the yuan’s official guidance firmer than market forecasts on Wednesday, after it said on Monday it would cut the amount of foreign exchange reserves that financial institutions must hold.

Markets were also eyeing Chinese trade data for August due later for more clues on the health of the world’s second-largest economy, which could bring some volatility to the market.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.9160 per dollar, its lowest in more than two years and 64 pips weaker than the previous fix of 6.9096.

But the official midpoint was firmer-than-expected for the 11th straight trading day and was 526 pips firmer than a Reuters estimate of 6.9686.

Traders and analysts said the central bank’s persistent firmer-than-expected midpoint fixings could be an attempt to prevent the local currency from quickly breaching the key threshold.

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The “strong fixing signal to stabilize the yuan and the fixing bias is the strongest seen on record,” analysts at Maybank said in a note.

“While not bringing USD/CNH significantly lower, stronger signalling from PBOC appears to be slowing the USD/CNH rally.”

In the spot market, the onshore yuan opened at 6.9650 per dollar and traded at 6.9710 as of 0209 GMT, 165 pips weaker than the previous late session close.

Its offshore counterpart weakened to a low of 6.9868 per dollar in early trade, the weakest level since Aug. 4, 2020. It last traded at 6.9836 as of 0209 GMT.

Some currency traders said the mentality of some corporate clients has changed amid the yuan’s fast depreciation.

“Instead of locking in exchange gains to settle their FX receipts into the yuan, some were in a rush to purchase dollars,” said a trader at a Chinese bank.