Tag: US Dollar/Chinese Renminbi FX Spot Rate

‘Chaotic era’ for Asian currencies: Bank of America is not bullish on any of them

A Japanese 1,000 yen banknote sits on a pile of South Korean won banknotes for an arranged photograph at a Woori Bank Co. branch in Seoul, South Korea.

SeongJoon Cho | Bloomberg via Getty Images

Bank of America is bearish on a slew of Asian currencies and neutral at best on others, as the investment bank says it is the start of a “chaotic era.”

“We are not bullish on any currency in Asia,” Bank of America said in a recent report, with many currencies impacted by a delayed Federal Reserve easing cycle and sustained strength in the U.S. dollar.

The investment bank singled out the Chinese yuan, South Korean won, Taiwan dollar, Thai baht and Vietnamese dong under its bearish category.

Among their “neutral” list of currencies are the Hong Kong dollar, the Indonesian rupiah, the India rupee, the Malaysian ringgit, the Philippine peso and the Singapore dollar.

Chinese yuan

BofA forecasts the Chinese yuan to trade at 7.35 against the dollar this quarter and weaken to 7.45 in the third and fourth quarters.

The bank expects yuan depreciation pressures to sustain into the second half of the year, due to: the delayed Fed easing, China’s disinflationary behavior aggravating yield gap with the U.S. and a weak financial account as a result of a deterioration in foreign direct investment.

Chinese onshore yuan since the start of the year

Hotter-than-expected U.S. inflation in March pushed back market expectations of a rate cut to September, and lowered the outlook this year to two reductions from three.

The onshore CNY is currently trading at 7.24 per U.S. dollar.

South Korean won

The outlook for the Korean won “significantly turned” after the Fed pushed back on the timing of the rate cuts and Middle East geopolitical risks became a major headwind, said BofA.

“Year-to-date, we have seen impressive inflows into Korean equities, but these inflows are beginning to reverse as global equities are turning from the two aforementioned risk,” BofA’s economists wrote.

The South Korean won recently slipped to an 18-month low of 1,389.5 against the dollar. The Bank of Korea chief called the won volatility “excessive” and said the central bank would intervene if needed.

The won was last trading at 1,347.3 against the U.S. dollar. BofA’s economists said the won is currently overvalued compared with fair value of 1,417.

Taiwan dollar

BofA also remains negative on the Taiwan dollar given strong equity outflows and life insurance companies’ additional unwinding of non-deliverable forward hedges. An NDF is a currency derivatives contract that establishes a settlement between the prevailing spot rate and a contracted rate.

The Taiwan dollar is currently trading at 32.6 per U.S. dollar.

Vietnamese dong and Thai baht

The Vietnamese dong is trading at 25,450 per dollar, weakening almost 5% so far this year.

Compounding the impact of delayed Fed cuts are Vietnam’s political instability following the second presidential resignation in two years as well as difficulty in its property sector, said BofA. Those headwinds fuel domestic demand for the U.S. dollar and gold, the bank said.

“We revise our forecasts in anticipation of further modest VND depreciation pressure to 25,600 by end-2Q and ultimately USD/VND at 25,700 by year-end,” the note said.

The Thai baht similarly remains vulnerable to geopolitical tensions via higher oil prices and freight costs, BofA said. It revised its forecast for the currency to 37 against the greenback by the end of the year.

The investment bank did not mention the Japanese yen, which has hovered around 34-year lows against the U.S. dollar. The currency has struggled, slipping past 150, since the Bank of Japan raised rates in March.

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April 23, 2024
China’s factory activity shrinks for a third month as recovery momentum stalls

Factory activity in China in June contracted for a third month, official data released June 30, 2023 show. Weak China economic data in April and May have fanned calls for economic stimulus for the world’s second-largest economy.

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China’s factory activity in June contracted for a third month, while non-manufacturing activity was at its weakest since Beijing abandoned its strict “zero Covid” policy late last year.

The latest data points to a patchy recovery in the world’s second-largest economy as the growth momentum fizzles.

The official manufacturing purchasing managers’ index (PMI) came in at 49.0 in June — compared to 48.8 in May and 49.2 in April — according to data from the National Bureau of Statistics released on Friday. June’s reading was in line with the median forecast in a Reuters poll.

Friday’s figures also showed China posting its weakest official non-manufacturing PMI reading this year, coming in at 53.2 in June — compared to 54.5 in May and 56.4 in April. A PMI reading above 50 points to an expansion in activity, while a reading below that level suggests a contraction.

“Economic momentum is still quite weak in China. Recent data shows the global economy is slowing, which will likely put further pressure on external demand in the coming months,” said Zhang Zhiwei, Pinpoint Asset Management’s president and chief economist.

“On the other hand, the government’s growth target of 5% this year is quite modest given the low base last year. It is not clear if the weak economic data would push the government to launch aggressive stimulus measures soon,” he added.

The Hang Seng Index and the CSI 300 index reversed losses to rise marginally in early Friday trade after the PMI data was released. The Chinese yuan hit its weakest against the U.S. dollar since mid-November despite the central bank’s stronger-than-expected midpoint fix — the fourth this week as the PBOC seeks to stem weakness in the currency.

Key meetings ahead

Chinese Premier Li Qiang said Tuesday his country was still on track to reach its annual growth target of around 5% — a modest target after China grew just 3% last year, one of the weakest showings in nearly half a century.

Market watchers are anticipating the next steps from a Politburo meeting in July, during which the Communist Party’s top brass will review the country’s economic performance in the first half of the year.

China’s State Council had pledged in mid-June to roll out “more forceful measures” in a timely manner to enhance the momentum of economic development, optimize the economic structure, and promote sustained recovery.

Economic growth in April and May came in below expectations, intensifying calls for more decisive monetary measures to support China’s growth, as a much-anticipated post-Covid rebound disappointed.

Major Wall Street banks — from Goldman Sachs and Bank of America to UBS and Nomura — recently cut their China growth projections.

But a private survey released Friday showed China’s monetary stimulus in August did little to boost loan demand in the second quarter — even though borrowing costs for businesses were lower than a year ago.

It underscores the difficulties faced by the Chinese government face, and throws doubt on whether the latest round of rate cuts in mid-June will be effective.

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June 29, 2023
HKEX’s new dual counter scheme ‘solidifies’ Hong Kong’s role as yuan trading hub, CEO says

HONG KONG, CHINA – JUNE 05: A pedestrian walks by an electronic screen displaying the numbers for the Hang Seng Index on June 5, 2023 in Hong Kong, China. (Photo by Chen Yongnuo/China News Service/VCG via Getty Images)

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Investors will now be able to trade selected Hong Kong stocks in both the Hong Kong dollar and Chinese yuan in the so-called dual counter scheme that launched Monday.

The newly launched “HKD-RMB Dual Counter Model” will see an initial 24 companies start offering yuan counters to allow investors in Hong Kong to trade in the yuan, in addition to the Hong Kong currency. Companies on the list include tech heavyweights like Tencent, Alibaba and Baidu.

The dual counter model covers securities listed in both Hong Kong dollar and renminbi counters only. The Hong Kong Exchange said all shares of the same securities in the two different trading counters will be “fully interchangeable between counters.”

In an exclusive interview on CNBC’s “Squawk Box Asia,” Hong Kong Exchanges and Clearing CEO Nicolas Aguzin said the move was aimed at giving investors more options for investments, as well as more diversification possibilities.

“This program is aimed at number one, making sure that we give more options to investors. Number two, that we continue helping on the internationalization of the renminbi.” Thirdly, he said it “solidifies” Hong Kong’s role as a yuan trading hub.

The HKEX CEO noted that the initial batch of 24 companies make up about 40% of the average daily trading volume in the Hong Kong.

“We would expect that to continue expanding,” he added. “And over time, I think a great majority of the stocks in our markets will be participating in this program.”

With trading volumes in Hong Kong at a four year low, Aguzin said he expects an increase in turnover from the new dual connect model, noting there are “a lot” of yuan deposits in Hong Kong. As such, “you’re tapping a liquidity pool that is in renminbi that will now be able to invest directly,” he pointed out.

The key objective is to simplify the southbound flow of investments from the mainland, Aguzin said.

Investments from the mainland are currently carried out via the Southbound Stock Connect, which allows mainland investors to purchase Hong Kong stocks in Hong Kong dollars.

Stock Connect is a mutual market access program that allows investors in mainland China to trade and settle shares in Hong Kong via exchanges and clearing house in their home market, and vice versa.

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Aguzin highlighted that it’s “very inconvenient for the mainland investors, [and] the fact that they will 1687155004 be able to transact in an instant basis in renminbi, that’s a huge difference.”

He foresees more investment flow from the mainland, especially from retail investors.

“One of the challenges of Hong Kong is it’s only 7 million people. So it’s very limited in terms of retail. But the mainland, 1.4 billion people, that’s a lot. And a lot of that can come through Stock Connect and help liquidity in our market.”

The dual counter model will initially target the offerings at investors holding offshore yuan, and eventually, enable mainland investors to trade yuan stocks listed in Hong Kong using onshore yuan, Reuters reported.

While there is no firm date for when investments via Stock Connect will be able to access the dual counter model, Aguzin said this will take a little bit of time, and the HKEX is working closely with regulators and other stakeholders to make sure everything will be in place before making an announcement.

Not the first try

This is not the first time that such a scheme is being introduced in Hong Kong.

In 2012, the Hong Kong exchange launched a similar scheme called the “dual tranche, dual counter” model, which allowed the issuer to offer and list two tranches of shares in both the Hong Kong dollar and Chinese yuan.

As with today’s dual counter model, shares of both RMB tranche and the HKD tranche were of the same class, and shareholders under these two tranches are expected to be treated equally.

According to Bloomberg, that scheme failed to take off when only one company took it up.

The difference this time is that there is a “dual counter market maker program” — aimed at providing liquidity to the yuan counter and minimizing price discrepancies between the Hong Kong dollar and yuan counters.

Aguzin said there are currently nine of these market makers that have signed up, and he thinks this “should encourage a lot of activity and [make] sure that the markets are really stabilized in both markets.”

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June 18, 2023
Goldman joins Wall Street banks in cutting China’s growth outlook as post-Covid bounce fades

Aerial photo shows the traffic flow on a viaduct in Nanjing, East China’s Jiangsu Province, June 16, 2023. (Photo by Costfoto/NurPhoto via Getty Images)

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Goldman Sachs became the latest Wall Street bank to downgrade its growth forecast for China, as the world’s second-largest economy stutters and loses momentum after its coronavirus reopening.

The investment bank cut its full-year gross domestic product forecast for 2023 from 6% to 5.4%, noting further turbulence ahead for the economy. The recovery from its stringent Covid-19 lockdown measures continue to disappoint through soft economic data, as well as mounting pressure on its property sector.

While the firm sees further stimulus to come, it notes that the measures will not be enough to overcome the greater problems that it faces: weakened sentiment.

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“With continued challenges from the property market, pervasive pessimism among consumers and private entrepreneurs, and only moderate policy easing to partially offset the strong growth headwinds, we mark down our 2023 real GDP forecast,” economists led by Chief China Economist Hui Shan said in research note Sunday.

The latest revision from Goldman Sachs follows the likes of UBS, Bank of America and JPMorgan who have all downgraded their China full-year GDP estimates.

Goldman Sachs’ economists added that there are a slew of macroeconomic issues facing the nation.

“With the reopening boost quickly fading, medium-term challenges such as demographics, the multi-year property downturn, local government implicit debt problems, and geopolitical tensions may start to become more important in China’s growth outlook,” they said.

It also sees further weakness in the Chinese yuan against the U.S. dollar due to rate differentials with the People’s Bank of China expected to ease its monetary policy further while the Federal Reserve is hinting at more rate hikes to come.

UBS also sees continued weakness in China’s economy ahead, particularly focusing on the second quarter of the year.

“Q2 [second quarter] sequential growth may slow to only 1-2% quarter-on-quarter saar [seasonally adjusted annual rate], weaker than our earlier expectation of 4.5%,” UBS Investment Bank’s Chief China economist Wang Tao said in a Friday note.

Wang noted that uncertainty in China’s property sector remains a central risk to its forecast and could bring its growth outlook even lower.

“Risks to our forecast is slightly biased towards the downside, mainly from uncertainties in property market and path of property policy support ahead, as well as weaker external demand,” she said.

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June 18, 2023
China opens a new era of ‘proactive easing’ as the economic recovery turns sour

SHANGHAI, CHINA – NOVEMBER 04, 2022: Buildings at Lujiazui Financial District are illuminated to celebrate the opening ceremony of the 5th China International Import Expo (CIIE) on November 4, 2022 in Shanghai, China.

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A central bank move in Beijing this week is being seen by economists as a starting gun on a new era of monetary policy as China’s Covid-19 reopening fails to gather pace.

On Tuesday, the People’s Bank of China cut its seven-day reverse repurchase rate from 2% to 1.9% — the such first cut in nine months — as the economy loses momentum and hard data starts to disappoint. Top China economists at Wall Street banks viewed the move as the start of much more easing to come.

“This is the first cut since August 2022, and confirms further that policymakers have switched to proactive easing from wait-and-see,” Citi economists, led by Xiangrong Yu, said in a Tuesday research note shortly after the PBOC’s announcement.

“Our thesis of timely easing is playing out, and more measures of small steps that don’t have a high threshold could follow in coming weeks,” they said, adding that the upcoming July Politburo meeting in Beijing would be closely watched for more significant measures to follow.

China’s sovereign bonds rose in price following the latest move by the central bank while the Chinese yuan dipped to its weakest levels since November.

Pointing to soft economic figures from China, including credit data, Citi economists said “stimulus seems to be underway with the weak readings.”

China’s new bank loans for the month of May rose by 11.4% to 1.36 trillion yuan ($190 billion), missing estimates from a Reuters poll and strengthening the case for further stimulus, as the economy continues to see tumbling industrial profits on soft demand and falling exports.

Barclays economists, writing in a Tuesday note titled “Entering a rate cut cycle,” predict China will deliver a cut for every quarter until early 2024. The bank predicts a 10 basis-point cut in the medium-term lending facility rate on Thursday, as well as a cut to its loan prime rate next week (two monetary levers the PBOC uses).

“In the next nine months, based on our economic analysis and reasoning, we now expect the central bank to continue its monetary easing cycle with additional 30bp [basis point] policy rate cuts in total, 50bp RRR cuts and 60-80bp mortgage rate cuts for both new and existing home loans,” Barclays economists led by Jian Chang said in a note.

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Goldman Sachs economists including Hui Shan said the firm expects the central bank to cut its medium-term lending facility rate on Thursday and its loan prime rate by 10 basis points next week. China’s central bank controls the benchmark one-year lending and deposit rates, which affect the borrowing costs for banks, businesses and individuals across the country.

Noting that the PBOC has never never cut policy rates and the reserve requirement ratio in the same month before, Goldman Sachs economists expect a full RRR cut to be delivered in the third quarter of this year. The reserve requirement ratio refers to the amount of money that banks must hold in their coffers as a proportion of their total deposits.

Goldman Sachs also expects the PBOC to deliver another 25 basis point RRR cut in the third quarter of this year, their economists said, adding that the firm expects another cut in the final quarter as well.

“Sluggish activity growth, potentially weak credit extensions, and low confidence are the reasons behind this cut, in our view,” they said.

Is it enough?

Mizuho Bank’s Head of Economics and Strategy for Asia Vishnu Varathan argued that the latest actions from China’s central bank “does not cut it.”

“Markets were justifiably unimpressed as credit data details suggest a worrying private sector confidence deficit that is likely to diminish run-of-the-mill stimulus efforts,” he said.

He predicted a more significant plan would be necessary — at the risk of overshooting and harming stability in the economy.

“Save for a more comprehensive stimulus plan that may necessarily imperil financial stability, it looks like PBOC rate cuts may just not cut it,” Varathan said.

Societe Generale economists also said, “much more easing is needed, particularly fiscal backed by central gov funding.”

“However, the drip mode of easing – preferred by Chinese policymakers – may not be well suited to containing the mounting deleveraging pressure within the economy,” SocGen economists said.

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June 13, 2023
China’s producer prices plunge the most in seven years as deflation hangs over economy

People walk past buildings in Shanghai, Shanghai, China, on Friday, April 21, 2023.

Bloomberg | Bloomberg | Getty Images

Inflation in China stayed at low levels in May, as the economy struggles to recover even after its strict Covid lockdown measures lifted late last year.

Producer price index in May fell 4.6%, compared to a decline of 3.6% in April. A Reuters poll showed economists expected to see a decline of 4.3% in producer prices.

The reading marked the steepest year-on-year drop in seven years, when producer prices saw a year-on-year drop of 7.2% in May 2016.

China’s consumer price index in May rose 0.2% compared to a year ago, government data showed. Economists surveyed by Reuters expected a 0.3% rise. CPI in April was at a two-year low of 0.1%.

Month-on-month, prices fell 0.2% — economists predicted a 0.1% decline.

China’s low consumer inflation and deflation in its producer prices come in contrast to relatively high inflation in major economies around the world.

Global central banks, including the U.S. Federal Reserve, have been fighting to bring down rising prices for more than a year. Just this week, Canada and Australia defied expectations and raised interest rates.

After the release , the onshore Chinese yuan weakened 0.06% after to 7.1154 against the U.S. dollar. The CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, shed 0.2% and last traded slightly above the flatline.

The latest data is among a batch of economic indicators that point to a cooling economy in China.

Pinpoint Asset Management’s Zhiwei Zhang said, “The risk of deflation is still weighing on the economy. Recent economic indicators send consistent signals that the economy is cooling.”

Zhang expects the Chinese government’s next fiscal policy review to take place after its second quarter gross domestic product is released next month.

This is a breaking news story. Please check back for updates

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June 8, 2023
Consumer prices in China rose 0.1% in April, the slowest rate in two years

The People’s Bank of China (PBOC) building in Beijing, China, on Tuesday, April 18, 2023. China’s economy grew at the fastest pace in a year in the first quarter, putting Beijing on track to meet its growth goal for the year without adding major stimulus, while also helping to cushion the global economy against a downturn. Source: Bloomberg

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China’s consumer price index rose 0.1% in April year-on-year, the slowest since early 2021. Month-on-month, prices declined by 0.1%.

Economists surveyed by Reuters expected to see consumer prices rise 0.4% from a year ago and remain unchanged from the previous month.

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Core inflation, which excludes food and energy, remained steady at 0.7% year-on-year and 0.1% month-on-month.

April’s reading comes after China’s inflation rate eased to 0.7% in March after marking a recent peak of 2.8% in September.

Compared with last year, service prices rose 1% in April, according to the National Bureau of Statistics. That’s faster than the 0.8% increase in March. Notable strength came from travel as domestic tourism recovers, especially in transportation and leisure activities over the Golden Week holiday.

China’s producer price index, which measures prices paid by wholesalers, fell 3.6%. Economists surveyed by Reuters expected to see a decline of 3.2% year-on-year after dropping 2.5% in the previous month.

That’s a stark contrast to the latest U.S. inflation data overnight which showed consumer prices rose 4.9% in April – easing in the wake of the Federal Reserve’s efforts to tame inflation by hiking rates 10 consecutive times.

The onshore Chinese yuan weakened by 0.04% to 6.9428 against the U.S. dollar shortly after the release.

“China consumer recovery is still in its early stage, given the fact that the economy has been weak for quite some time, and people’s income levels are not that strong,” Aletheia Capital’s China strategist Vincent Chan told CNBC’s Street Signs Asia.”

Chan added that there is an expectation for the Chinese government to “do more” in providing stimulus to boost the economy’s weak demand.

“There’s more room for stronger fiscal stimulus,” he told CNBC. “Probably the market wants to see that.”

Inflation has largely moderated in China following its reopening, prompting market watchers to question whether the world’s second-largest economy is heading into deflation, BofA’s chief China economist Helen Qiao wrote in a Tuesday note.

“It almost appears that when major central banks find it hard to tame the inflation beast, the [People’s Bank of China] would have ranked high on the scorecard for inflation control,” she wrote.

Qiao added that China has managed to keep its consumer price index inflation rate at an average of 1.8%, which is close to the lowest 3-year average reading since 2003.

Now, China’s core CPI inflation is already well below Japan’s levels, BofA economists noted.

Though not yet at deflationary levels, China’s low inflation is likely driven by insufficient demand.

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“Households, though have already seen a notable pent-up demand from tourism during the recent holidays, are still cautious on goods spending, especially for large ticket items (white goods, autos etc.,),” Qiao wrote in the note.

“The weak labor market as well as the slower recovery in the property market continued to weigh on consumer sentiments,” she wrote.

Inflation spillover unlikely

The service-driven inflation readings show there is a lower chance of inflation from China’s reopening spilling over to the global economy.

“In short, it is clear that the service sector is normalizing quickly since the beginning of the year, but at this stage the broadening of the reopening recovery remains to be seen with risks from slowing exports, a sluggish property recovery, still weak confidence,” Societe Generale economists Michelle Lam and Wei Yao wrote.

The latest Caixin/S&P Global services purchasing managers’ index remained in growth territory in April, showing the service sector remained a bright spot despite disappointing factory activity data.

“The service-driven nature of this recovery also means there are less inflation spillovers to the rest of the world this year,” they wrote.

– CNBC’s Lim Hui Jie contributed to this report

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May 10, 2023
Morgan Stanley upgrades its 2023 growth outlook for China, expects stronger and earlier rebound

Employees working on the production line of carbon fiber badminton rackets at a factory in Sihong County, in China’s Jiangsu province. China reported Saturday that factory activity in April contracted at a steeper pace as Covid-19 lockdowns halted industrial production and disrupted supply chains.

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Morgan Stanley raised its outlook for China’s economy in 2023, predicting a rebound in activity will come earlier and be sharper than expected.

The firm raised its forecasts for the country’s gross domestic product in 2023 to 5.4% from its previous outlook of 5%, according to a research note led by the firm’s chief Asia economist Chetan Ahya.

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“We had previously expected a rebound in activity to materialize from late 2Q23. Now we are projecting mobility to improve from early March,” the note said, adding that the firm expects to see a “faster and sharper rise in mobility” to be reflected in the economy starting in the second quarter.

The outlook upgrade comes after the firm raised its recommendation rating for Chinese equities to overweight from equal-weight earlier this month on reopening optimism, marking the end of a stance that it held for nearly two years.

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China’s government is also shifting to prioritizing economic growth, another pillar behind Morgan Stanley’s revised forecast for the country’s economic outlook.

“From our perspective, policymakers are taking concerted action to lift growth across all fronts,” the note said. “This is the first time since 2019 where domestic macro policies and Covid management are aligned in supporting a growth recovery, rather than acting as countervailing forces.”

Reuters separately reported that the nation is working on a stimulus package worth more than $143 billion to support its semiconductor industry, which would be one of its biggest-ever fiscal incentive package.

Underpriced yuan

Morgan Stanley also sees China’s foreign exchange rates as underpriced.

“In FX, we don’t believe that the market is pricing in the reopening trade fully yet,” the note said, adding that forex traders have historically converted their holding of the U.S. dollar into Chinese yuan while the onshore currency was stronger.

“Given the recent appreciation of CNY, they now have more incentive to convert, pushing CNY stronger, especially before the Chinese New Year when they need to pay wages and bonuses,” the economists said in the note.

The onshore Chinese yuan stood at 6.9590 against the U.S. dollar on Wednesday morning – below the key 7.0 level against the greenback, which Morgan Stanley said makes it more attractive for exporters to buy more Chinese yuan with U.S. dollars.

“This is because the economic weakness will be reflected in fewer imports, supporting CNY,” the note said.

‘Number of risks’

One of the risks that Morgan Stanley acknowledged is a potential withdrawal of policy support.

During China’s reopening process, analysts expect a surge in Covid infections. A rapid increase in hospitalizations and strain on the public health care system could possibly lead to officials in China rethinking their policy stance.

“An earlier-than-expected withdrawal of policy support – such as a sharp pullback in infrastructure spending, tightening of monetary policy, or a tightening of regulatory policies – could dampen animal spirits and weaken growth,” it said.

The report said further easing of restrictions will likely lead to a significant rise in Covid cases, though the firm predicted the impact of the surge will be short-lived.

Another area of uncertainty for Morgan Stanley’s growth outlook is geopolitics.

“The reappearance of geopolitical tension much earlier could also trigger a spike in China’s equity risk premium,” the note said.

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December 13, 2022
‘Do not bet’: China’s central bank warns against yuan speculation

The Chinese yuan weakened past the closely-watched 7.2 level against the greenback this week.

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BEIJING — The People’s Bank of China has warned against betting on the yuan, after its rapid decline against the U.S. dollar this week.

“Do not bet on a one-sided appreciation or deprecation of the renminbi exchange rate,” the central bank said in a Chinese statement on its website late Wednesday, according to a CNBC translation.

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That’s based on a readout of a speech by vice governor Liu Guoqiang at a video conference meeting on foreign exchange that day.

The renminbi, or the yuan, crossed the 7.2 level against the greenback Wednesday, falling to its weakest since 2008. The U.S. dollar index, which tracks the dollar against major global currencies, has climbed to two-decade highs as the U.S. Federal Reserve aggressively raised interest rates this year.

The PBOC’s statement, with its requirement for banks to maintain stability in the foreign exchange market, is “verbal guidance against the recent rapid depreciation of the currency,” Goldman Sachs analyst Maggie Wei and a team said in a note.

However, the yuan’s crossing of the 7.2 mark “suggests Chinese policymakers are not necessarily defending a particular level of the exchange rate,” the report said. The “statement from the PBOC might slow the pace of CNY depreciation on the margin.”

The onshore-traded yuan has weakened against the dollar by 1.9% so far this week, according to Wind Information.

The Chinese central bank has made other moves to support the yuan this month, including reducing the amount of foreign currency banks need to hold.

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September 29, 2022