SHANGHAI/SINGAPORE: China’s yuan weakened past a key threshold to a new two-month low against the dollar on Friday before steadying as exporters rushed to settle their FX receipts and lock in profits.
The yuan breached the psychologically important 6.95 per dollar in early trade, as losses accelerated after the spot rate crossed 200-day moving average of 6.94.
The currency’s weakness followed a slew of downbeat data, suggesting that China’s economic recovery might have lost some steam, with weak confidence holding back post-pandemic spending and growth.
However, currency traders said corporate clients emerged as dollar sellers after the yuan weakened above the key 6.95 per dollar level, in a move anticipated by analysts at Barclays.
“Chinese exporters have been hoarding dollar receivables,” Barclays analysts said in a note published last week.
“We see 6.95 as first resistance level for USD/CNY, as exporters could sell dollar holdings at these levels.” Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at a two-month low of 6.9481 per dollar, 380 pips or 0.55% weaker than the previous fix of 6.9101.
In the spot market, the onshore yuan opened at 6.9512 per dollar and weakened to a low of 6.9518 at one point, the softest level since March 10. By midday, it was changing hands at 6.9479, 16 pips firmer than the previous late session close.
If the yuan finishes the late night session at the midday level, it would have lost 0.6% against the dollar for the week, the biggest weekly drop since late February.
“Unless a higher USD/CNY reaches an inflection point, creating a self-fulfilling vicious cycle of higher USD/CNY and subsequent capital outflows, intervention in the FX market is likely to be limited at this stage,” Kiyong Seong, lead Asia macro strategist at Societe Generale said in a note.
China’s yuan slides to 2-month low on disappointing inflation data
With “big four” state-owned banks being told to reduce the ceiling on interest rates they pay on some deposits, traders said investors would pay close attention to the central bank’s medium-term policy loan rollover on Monday to gauge the official stance on monetary policy.
“China reopening remains disappointing and so we expect further stimulus in coming months,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.
“So far, the measures taken have had little impact on the economy.”
By midday, the global dollar index rose to 102.093 from the previous close of 102.058, while the offshore yuan was trading at 6.954 per dollar.
The one-year forward value for the offshore yuan traded at 6.7841 per dollar, indicating a 2.50% appreciation within 12 months.
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