China’s yuan hits 1-month low as policy easing expectations, COVID resurgence hurt

Author of the article: 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 coronavirus cases. Traders said investors were also concerned about the rapid gains in the yuan’s value…
China’s yuan hits 1-month low as policy easing expectations, COVID resurgence hurt

Author of the article:

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

coronavirus cases.

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:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.3506 6.3306 -0.31%

Spot yuan 6.3519 6.34 -0.19%

Divergence from 0.02%

midpoint*

Spot change YTD 0.05%

Spot change since 2005 30.30%

revaluation

Key indexes:

Item Current Previous Change

Thomson 106.32 106.37 0.0

Reuters/HKEX

CNH index

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

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.3638 -0.19%

*

Offshore 6.4808 -2.01%

non-deliverable

forwards

**

*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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