China’s yuan fell to the weakest level since November after a series of disappointing economic figures added to concern about the nation’s sputtering growth.
(Bloomberg) — China’s yuan fell to the weakest level since November after a series of disappointing economic figures added to concern about the nation’s sputtering growth.
The offshore yuan dropped as much as 0.5% Monday to 7.2927 per dollar. The currency has now tumbled about 5% this year, the worst performer in Asia after the yen.
“People’s Bank of China has been trying like crazy to keep it contained,” said Brad Bechtel, a foreign-exchange strategist at Jefferies. “What they are doing isn’t stopping it, but it is slowing it down and maybe that is all they care about.”
The offshore rate could have been weaker than 7.400 or even 7.500 if not for those efforts, he said.
The yuan has been undermined as Chinese economic data for July have almost all trailed market expectations. Among the worst readings, bank loans slid to a 14-year low, consumer and producer prices both declined, and exports slid the most since February 2020. The stumbling economy and lack of any effective stimulus measures have left the yuan with little support as the dollar has rallied.
Still, the yuan’s recent weakness may prompt the central bank to deliver more measures to slow its losses. The People’s Bank of China on Monday set its daily currency fixing 668 pips stronger than the average estimate in a Bloomberg survey, the largest premium in three weeks. Last month it also adjusted some rules to allow companies to borrow more from overseas to encourage inflows.
“My sense is that Beijing is resigned to allowing a weaker currency despite attempts to draw a line in the sand,” said Viraj Patel, a strategist at Vanda Research. “I struggle to see how further weakness will be tolerated, I am looking at 7.30-7.40 area as a key area that could see more forceful intervention.”
“The PBOC is fighting back the rising USD tide with another stronger-than-expected yuan fixing today,” said Wei Liang Chang, a macro strategist at DBS Bank Ltd. in Singapore. “This underscores the authorities’ preference for RMB stability, as well as to curb excessive RMB speculation.”
The yuan is likely to find support at 7.30 per dollar, Wei said.
While the yuan has been sliding against the greenback, it’s doing better against the rest of its peers. The currency has climbed about 2.2% from a July low versus a trade-weighted basket of 24 counterparts, according to a Bloomberg tracker.
Chinese shares also dropped Monday with the CSI 300 Index slipping as much as 1.8%, wiping out most of the gains it had made following the pro-growth tone of the Politburo meeting on July 24. Bonds gained as investors sought the securities as a haven. The nation’s 10-year yield fell one basis point to 2.62%, approaching this year’s low of 2.59%.
Sentiment toward China’s currency has also soured this month as Country Garden Holdings Co., formerly the nation’s largest developer by sales, has tumbled amid concern over its liquidity. Similarly, two clients of trust company Zhongrong International Trust Co. said Friday the firm had delayed payment of maturing wealth products, adding to signs of turmoil in the financial sector.
Investors will evaluate more July data due Tuesday including industrial output, retail sales and fixed-assets investment. The central bank’s monthly operation that day for 400 billion yuan ($55.1 billion) of maturity policy loans will also provide some clues on its willingness to loosen policy.
“If more sectors – for example, highly indebted local governments – succumb to deleveraging, there could be a bigger and longer toll on mainland China’s economy,” HSBC Holdings Plc analysts wrote in a research note, “In such slowdowns, currency depreciation tends to be both a consequence and part of the solution.”
–With assistance from April Ma, Anya Andrianova, George Lei and Liau Y-Sing.
(Updates market moves throughout.)
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