Chinese yuan set to see biggest weekly decline in four years as economy stumbles
youpdates closing price, adds JPM forecasts and SAFE comments
SHANGHAI, April 22 (Reuters) – The Chinese yuan extended its losses against the dollar on Friday and looked set for its worst week in almost four years, prompting questions about whether the authorities were allowing him to falter for cushion the country’s severe economic crisis to slow down.
A hawkish US Federal Reserve, the fading Chinese yield advantage and growth economic the pressures have dragged the yuan, or renminbi, to its lowest level in seven months. Many major Chinese cities, including Shanghai, are in lockdown due to COVID-19.
Yuan losses accelerated friday after a breach of the psychologically critical threshold of 6.4 to the dollar levelwith the onshore yuan CNY=CFXS Fending the domestic session at 6.4875.
For the week, the tightly managed currency fell 10.8% against the greenback, the largest weekly decline since JJune 2018.
Its offshore counterpart CNH=D3 touched as low as 6.5265 and is on track for its worst weekly performance since August 2015, when China staged a sharp one-off devaluation.
“The macroeconomic outlook for China and the renminbi has certainly changed significantly over the past few weeks due to COVID-related lockdowns and disruptions in large parts of the country, particularly in Shanghai,” said strategist Alvin Tan. Asia FX at the Royal Bank of Canada.
But some stakeholders were actually “quite happy” with such yuan weakness, which could ease pressure on Chinese exporters suffering from lockdowns, traders said.
“Export growth is likely to slow, so allowing some yuan weakness at this stage is fine,” said a trader at a Chinese bank.
Many traders said they had yet to see Chinese state-owned banks, which usually act on behalf of the central bank, appear in the market to stem yuan losses as they often do during quick moves, which they said was a sign of official approval of some depreciation.
The yuan trade-weighted basket index .CFSCNYI, an indicator that measures its value against that of its trading partners, hit a two-month low of 104.25 on Friday. China is keen to keep the index within a certain range to ensure that the country is not disadvantaged in foreign trade.
In Yuan Options Trading, Implied Volatility and Risk Reversals CNY1MRR= showed only slight depreciation pressure on the yuan.
Some market participants have said that China’s large currency deposits acquired by the private sector since the pandemic, coupled with the People’s Bank of China (PBOC) exchange rate policy management via its daily fixing, could prevent the yuan from sinking too quickly and too far.
On Friday, the PBOC set the midpoint rate CNY=PBOC to a six-month low for the yuan at 6.4596 to the dollar, but was 45 pips firmer than Reuters’ estimate of 6.4641.
While a much lower than expected fixation seen on Wednesday “was a strong political green light for CNY weakness, today’s correction could also be a message to check exuberant USD/CNY bulls,” Maybank analysts said in a note.
China’s foreign exchange regulator told media on Friday that authorities are able to adapt to Fed policy changes and officials expect overseas uncertainties to have a slight impact on the Chinese currency. [nL2N2WK0E9]
China’s foreign currency deposits hit a record high of $1.05 trillion at the end of March.
Still, global financial institutions, including JP Morgan and UBS Global Wealth Management, have revised down their forecasts for the yuan following the sharp swings.
The US investment bank revised its USD/CNY short-term target to 6.50 from 6.35 for the second quarter of this year.
“Based on the pandemic outbreak in various cities across China and the challenges of economic growth, as well as a more hawkish Fed,” UBS Global Wealth Management revised down its forecast for the yuan to weaken. trading at 6.55 per dollar at the end of June against 6.40 previously. .
(Reporting by Winni Zhou and Andrew Galbraith, Marc Jones in London; Editing by Christopher Cushing and Kim Coghill)
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