SHANGHAI: The yuan hit three-week lows on Thursday against a rebounding dollar, weighed by lingering worries over China’s economy and signs of accelerating capital outflows.
The spot yuan fell to as low as 7.1598 against the dollar, the weakest since Dec. 13, despite China’s central bank setting a firmer guidance rate prior to market open.
Sentiment remains weak toward China’s economic recovery.
“Looking ahead, China may see a cyclical recovery to perhaps 3.0-3.5% growth in 2024 as property bottoms out, although structural slowdown will naturally remain the dominant story for years to come,” US consultancy Rhodium Group said in its latest China outlook report.
In a sign of capital exodus, global long-only funds offloaded China equities at the fastest pace of 2023 in December as they rushed to meet redemption requests and to diversify away from China, according to Morgan Stanley.
China and Hong Kong equities saw a combined net outflow of $3.8 billion from active long-only managers last month, the third-largest monthly outflow on record, the Wall Street bank said in a report on Wednesday.
Yuan has also been hurt by a rebound in the dollar index , as traders reassess the pace of the US monetary policy pivot.
Federal Reserve officials in December launched an expansive debate about a coming turn in US monetary policy, according to minutes of the Dec. 12-13 meeting.
China’s yuan weakens to 3-week low as traders bet on imminent monetary easing
“Investors are re-evaluating the market’s expectations” of an early interest rate cut, given the message that rates will stay at a high level, said Christopher Wong, strategist at OCBC Bank.
“Overnight the FOMC minutes confirmed the end of Fed’s rate hike cycle but could be disappointing to USD bears without the discussion on the rate cut timing as mentioned by chair Powell,” Ken Cheung, Chief Asian FX Strategist at Mizuho Bank, said in a note.
In addition, “the saving rate cuts among Chinese banks opened the door for a policy rate cut as soon as in January.”
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