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Reuters

China’s yuan weakened past a key threshold to a new two-month low against the US dollar on Friday before steadying as exporters rushed to settle their foreign exchange receipts and lock in profits.
The yuan breached the psychologically important level of 6.95 per US dollar in early trading, as losses accelerated after the spot rate crossed the 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 US dollar sellers after the yuan weakened above the key 6.95 per US dollar level, in a move anticipated by analysts at Barclays.
Chinese exporters have been hoarding dollar receivables
Barclays
“Chinese exporters have been hoarding dollar receivables,” Barclays analysts said last week.
“We see 6.95 as first resistance level for [the exchange rate], as exporters could sell dollar holdings at these levels.”
Before the market opening, the People’s Bank of China (PBOC) set the midpoint rate at a two-month low of 6.9481 per US dollar, 380 pips or 0.55 per cent weaker than the previous fix of 6.9101.
In the spot market, the onshore yuan opened at 6.9512 per US 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.




China’s onshore yuan eventually finished the domestic session on Friday at 6.9506 per US dollar, the weakest close since March 10.
“Unless a higher [the exchange rate] reaches an inflection point, creating a self-fulfilling vicious cycle of [a higher exchange rate] and subsequent capital outflows, intervention in the [foreign exchange] market is likely to be limited at this stage,” Kiyong Seong, lead Asia macro strategist at Societe Generale said.
With so-called 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.”
In 1 month, truck routes may fully resume between China and North Korea: source
By midday, the global US dollar index rose to 102.093 from the previous close of 102.058, while the offshore yuan was trading at 6.954 per US dollar.
The one-year forward value for the offshore yuan traded at 6.7841 per US dollar, indicating a 2.50 per cent appreciation within 12 months.
China’s central bank is likely to keep its medium-term policy rate unchanged when rolling over such maturing loans on Monday, despite a slew of recent data pointing to faltering economic recovery, a Reuters survey showed.
In a poll of 30 market watchers conducted this week, 26 participants, or 86.7 per cent, predicted the PBOC would keep the interest rate on the one-year medium-term lending facility (MLF) unchanged at 2.75 per cent.
We still see no policy rate cut in 2023, while previous reserve requirement ratio cuts and lowering of banks’ deposit rate may lead to a small loan prime rate (LPR) cut by 10 basis points later
Wang Tao
Of the remaining four respondents, three forecast a five-basis-point interest rate cut and one forecast a 10 basis point cut when the 100 billion yuan (US$14.5 billion) worth of maturing MLF loans is rolled over.
“We still see no policy rate cut in 2023, while previous reserve requirement ratio cuts and lowering of banks’ deposit rate may lead to a small loan prime rate (LPR) cut by 10 basis points later,” said Wang Tao, head of Asia economics and chief China economist at UBS.
Wang added that she expected credit demand to recover this year despite a slump in bank lending in April.
Chinese banks extended 718.8 billion yuan (US$103.99 billion) in new yuan loans in April, tumbling from March and sharply missing analysts’ estimates.
Broad M2 money supply grew by 12.4 per cent in April from a year earlier, central bank data showed on Thursday
Outstanding yuan loans grew by 11.8 per cent in April from a year earlier compared with 11.8 per cent growth the previous month.
Will Fed rate hike pause give China more flexibility with its economic playbook?
But with regulators guiding banks’ deposit rates lower at the same time the US Federal Reserve has signalled a potential pause in its tightening cycle, some analysts and traders believe lending rates will inevitably decline in coming months.
“We now expect a reduction of 20 basis points to the MLF rate in the rest of this year, Citi’s proxy of policy rate,” Citi analysts said.
“The first cut could kick in as soon as late [in the second quarter]. Interest rate realignment would then lead to a downward revision to LPR by the same size – perhaps more for five-year LPR if the property momentum softens more than expected.”
The PBOC last cut the MLF rate in August 2022 in a bid to revive credit demand to support the coronavirus-hit economy.
The MLF rate serves as a guide to the benchmark LPR, and markets usually use the medium-term rate as a precursor to any changes to the lending benchmarks. The monthly fixing of LPR will be announced on May 22.


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The currency’s weakness followed a slew of downbeat data, suggesting that China’s economic recovery might have lost some steam. Photo: AP

The currency’s weakness followed a slew of downbeat data, suggesting that China’s economic recovery might have lost some steam. Photo: Reuters

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China’s onshore yuan finished the domestic session on Friday at 6.9506 per US dollar, the weakest close since March 10
The weakness followed a slew of downbeat data, suggesting that China’s economic recovery might have lost some steam


China’s onshore yuan finished the domestic session on Friday at 6.9506 per US dollar, the weakest close since March 10, following a slew of downbeat economic data.


China economy

China's economic recovery

People’s Bank of China (PBOC)

Currencies

China’s yuan weakens past key threshold to 2-month low after slew of downbeat economic data

China’s onshore yuan finished the domestic session on Friday at 6.9506 per US dollar, the weakest close since March 10 The weakness followed a slew of downbeat data, suggesting that China’s economic recovery might have lost some steam

China’s onshore yuan finished the domestic session on Friday at 6.9506 per US dollar, the weakest close since March 10

The weakness followed a slew of downbeat data, suggesting that China’s economic recovery might have lost some steam