SHANGHAI: China’s yuan weakened against the dollar on Monday and was on track for its eighth straight monthly decline in October, the longest such losing streak since 1994 when Beijing unified its market and official foreign exchange rates.
Persistent yuan weakness reflects a stronger dollar, which has been propped up by rapid Federal Reserve tightening, widening interest rate differentials between the world’s two largest economies and a domestic economic slowdown.
“Weakening external demand, zero-COVID and the property fallout will exert much downward pressure on RMB in coming months,” said Ting Lu, chief China economist at Nomura.
“However, markets also need to heed Beijing’s intervention due to its still deep pockets.”
State-owned banks have been seen several times selling dollars to prop up the local currency over recent weeks, sources told Reuters.
On Monday, data showed factory activity unexpectedly fell in October, weighed by softening global demand and strict domestic COVID-19 curbs, which hit production, travel and shipping in the world’s second-largest economy.
“Yuan sentiment is dampened by news of lockdowns as well as weaker PMI prints for Oct,” analysts at Maybank said in a note.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1768 per dollar, 70 pips weaker than the previous fix 7.1698, and the weakest since Feb. 14, 2008.
In the spot market, the onshore yuan opened at 7.2560 per dollar and was changing hands at 7.2630 at midday, 130 pips softer than the previous late session close.
If the yuan retains all the losses by late night close, it would have fallen about 2% against the dollar for the month, posting the eighth straight losing month. The local currency has fallen 12.5% so far this year, on course for the worst annual performance since 1994.
China’s yuan holds steady, looks set for longest monthly losing streak since 1994
In a report published over the weekend, PBOC Governor Yi Gang reaffirmed the monetary authority’s objectives to maintain a normal policy and keep the currency stable.
“This showed that China may have reckoned that monetary policy divergence was the main cause of the recent RMB volatility,” analysts at OCBC Bank said in a note.
“Although China has reiterated that its monetary policy will mainly depend on the domestic factors under the big country model, the emphasis on currency stability showed that China will take currency into account when formulating its monetary policy.”
The weakening currency has discouraged overseas investors from increasing their investments in yuan-denominated bonds.
The latest data showed foreigners quickened the pace at which they cut holdings of Chinese bonds in September, leading to the eighth consecutive month of outflows and the longest streak of outflows on record.
By midday, the global dollar index fell to 110.728 from the previous close of 110.752, while the offshore yuan was trading at 7.277 per dollar.
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