SHANGHAI — China’s yuan weakened to a
one-month low against the dollar on Monday, breaching a key
threshold, pressured by rising expectations of monetary policy
easing and worries over the fast spread of locally transmitted
Traders said investors were also concerned about the rapid
gains in the yuan’s value against major trading partners. The
CFETS basket index has been hovering at all-time
highs since last week, forcing the central bank to set
weaker-than-expected official fixings in recent sessions.
On Monday, the People’s Bank of China (PBOC) again set the
midpoint rate weaker, at a one-month low of 6.3506
per dollar prior to market open, 200 pips or 0.3% softer than
the previous fix 6.3306. And it was 117 pips softer than
Reuters’ estimate of 6.3389.
The lower-than-expected guidance rate dragged the spot price
lower. The onshore yuan opened on the weaker side of
the psychologically important 6.35 per dollar for first time
since Feb. 15. By midday, it was changing hands at 6.3519, 119
pips weaker than the previous late session close.
A double whammy of slowing economic growth and a resurgence
of COVID-19 cases stoked concerns about further yuan
depreciation, said a trader at a foreign bank.
Former PBOC adviser Yu Yongding expects China will further
cut interest rates to stabilize the economy, the China
Securities Journal reported on Monday.
Some market participants expect the PBOC to cut key interest
rates including the borrowing cost of the medium-term lending
facility (MLF) as soon as Tuesday.
“The latest credit data reinforced our view that a
turnaround of the property market is crucial for China to
achieve its growth target this year against the backdrop of
global uncertainty,” said Tommy Xie, head of Greater China
research at OCBC Bank.
“As such, we believe there is still room for China to lower
its interest rate. We think China may cut its interest rate as
early as March 15 during the next MLF rollover.”
Data on Friday showed new bank lending fell more than
expected in February while broad credit growth slowed.
Separately, a buoyant dollar ahead of the Federal Reserve’s
policy meeting later this week has also weighed on the yuan.
The Fed is all but certain to begin hiking interest rates
from their pandemic lows, with investors also watching
projections for the frequency and size of future rate increases.
By midday, the global dollar index rose to 99.255
from the previous close of 99.124, while the offshore yuan
was trading at 6.3638 per dollar.
The yuan market at 0345 GMT:
Item Current Previous Change
PBOC midpoint 6.3506 6.3306 -0.31%
Spot yuan 6.3519 6.34 -0.19%
Divergence from 0.02%
Spot change YTD 0.05%
Spot change since 2005 30.30%
Item Current Previous Change
Thomson 106.32 106.37 0.0
Dollar index 99.255 99.124 0.1
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People’s Bank of China (PBOC) allows the exchange rate to
rise or fall 2 percent from official midpoint rate it sets each
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.3638 -0.19%
Offshore 6.4808 -2.01%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC’s official midpoint,
since non-deliverable forwards are settled against the midpoint.
(Reporting by Winni Zhou and Andrew Galbraith
Editing by Shri Navaratnam)
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