China's yuan fell to its lowest against the U.S. dollar in more than 21 months on Thursday as the greenback strengthened and Washington's refrain from labelling China a currency manipulator gave bears added confidence to push the yuan lower.
China’s yuan fell to its lowest against the U.S. dollar in more than 21 months on Thursday as the greenback strengthened and Washington’s refrain from labelling China a currency manipulator gave bears added confidence to push the yuan lower. Also putting pressure on the yuan is divergence between monetary policy stances in China and the United States. Minutes of the Federal Reserve’s last meeting showed broad agreement on the need to raise U.S. borrowing costs further.
As the market largely expected, the Treasury Department did not name China a currency manipulator in its semi-annual report. But it expressed concern about the yuan’s depreciation. Gao Qi, FX strategist at Scotiabank, indicated he expects the yuan to keep weakening, saying it would “likely continue trading with a 6.95 resistance” following the Treasury decision.
Prior to market opening, the People’s Bank of China (PBOC) set Thursday’s midpoint rate at 6.9275 per dollar, 172 pips or 0.25 percent weaker than the previous fix of 6.9103. Thursday’s official guidance rate was set at the weakest level since Jan. 5, 2017. Traders said such weakness also dragged the spot rate lower.
The onshore yuan opened at 6.9340 per dollar and fell to a low of 6.9422 at one point, the lowest level since Jan.4, 2017. As of midday, the onshore yuan was changing hands at 6.9358, 123 pips weaker than the previous late session close and 0.12 percent softer than the midpoint. Its offshore counterpart was trading at 6.934 per dollar as of midday.
Traders said they had not seen major state-owned banks stepping into the market to prop up the yuan, but they still expect some forms of stabilising measures if the yuan continued falling to approach the psychologically critical 7 per dollar level. The dollar traded stronger against its major peers on Thursday after minutes from the Fed’s September meeting affirmed expectations that the central bank is likely to continue raising interest rates this year.
Premier Li Keqiang said while in Europe that China’s economy faces increasing downward pressure, and the government will take targeted measures to prevent large fluctuations in growth. “With the international environment being complicated and volatile, downward pressure on China’s economy has increased, but we are determined, and we are able, to cope with risks and challenges,” state radio reported Li saying in on Tuesday in the Netherlands.