Yuan weakens to 7-month low despite China’s move to stem decline

(Bloomberg) – The onshore yuan has reopened after a weak vacation, despite a move by China to slow its slide with a stronger-than-expected benchmark rate for the managed currency.

Bloomberg’s Most Read

The currency slid 0.5% to a seven-month low of 7.21 to the dollar in Shanghai as pessimism over China’s economic recovery and policy divergence from its peers continued to mount. weigh on sentiment. The offshore yuan was little changed. The People’s Bank of China had sought to rein in the local currency’s weakness by setting its so-called highest premium fix on Monday over this year’s estimates.

The move suggests the PBOC is growing increasingly uneasy about yuan weakness, the second-worst performance in Asia over the past month. The offshore yuan slipped to its lowest since November on Friday, amid investor disappointment with China’s modest stimulus.

“The yuan may weaken further in the near term as central banks in developed markets are more hawkish than expected and China’s growth recovery slower than expected, especially in the absence of stronger stimulus. strong,” said Becky Liu, head of China’s macroeconomics. strategy at Standard Chartered. “The yuan could drop to around 7.3 to the dollar, but by the end of the third or fourth quarter, we think it can stabilize and regain some ground.”

Optimism that authorities would be more proactive in supporting growth after the PBOC lowered a series of policy rates was dashed last week after mainland banks slashed a key lending benchmark only drastically. ‘a moderate amount, a move that sent down the yuan and stocks. The daily fixing limits movements of the onshore yuan to 2% on either side.

The weakness in mainland stocks continued after the holidays, with the CSI 300 index of mainland stocks falling 1.6%, with financials and consumer staples leading the losses.

“Any concrete news on a new round of fiscal stimulus in China would be helpful, but we think we may still have to wait for the political bureau meeting in July,” said Rodrigo Catril, currency strategist at National Australia Bank Ltd. .

China’s holiday travel spending has not reached pre-Covid levels, adding to concerns that the economy’s post-Covid recovery is running out of steam. June manufacturing data, to be released later this week, is expected to show continued contraction in the sector amid weak demand, according to Bloomberg economists.

Monday’s currency fixing “could be the first concrete indication from authorities that they view the yuan’s weakness as overdone,” said Khoon Goh, head of Asia research at the Australian and New Zealand banking group. . “With Japanese officials also making their exit and warning of excessive yen weakness, it seems likely that we could see a rebound in the yuan this week, especially since it is at the end of the month that the exporters generally convert their export earnings into yuan”.

(Updates with NAB, ANZ comments, stock reactions and more details on Chinese data starting in the fifth paragraph.)

Bloomberg Businessweek’s Most Read

©2023 Bloomberg LP

Leave a Comment