China's yuan ends at 28-month low despite fresh policy step, nears daily lower limit

[Hamartia Antidote]

China's yuan ends at 28-month low despite fresh policy step, nears daily lower limit

China's yuan finished domestic trading session at a new 28-month low against the dollar on Monday, near its downside trading limit, despite the central bank taking steps to rein in the currency's weakness.

www.reuters.com

SHANGHAI, Sept 26 (Reuters) - China's yuan finished domestic trading session at a new 28-month low against the dollar on Monday, near its downside trading limit, despite the central bank taking steps to rein in the currency's weakness.

The People's Bank of China (PBOC) said it would raise the foreign exchange risk reserves for financial institutions when purchasing FX through currency forwards to 20% from zero starting on Sept. 28.

The announcement, along with another firmer-than-expected daily midpoint fixing, was meant to slow the pace of the yuan's depreciation by making it more expensive to bet against it, traders said.

"This could stem further forward positions that have been negative for the yuan and slow its depreciation pace," analysts at Maybank said in a note.

Prior to market opening, the PBOC set the midpoint rate at 7.0298 per dollar, 378 pips or 0.54% weaker than the previous fix of 6.992 on Friday, the weakest since July 7, 2020.

However, the midpoint continued to come in much stronger than market projections for the 23rd straight trading session, traders and analysts said.

The official daily midpoint fixing limits the onshore yuan to trade in a narrow range of 2% above or below, and Monday's guidance kept the range to between 6.8892 and 7.1704.

The onshore yuan ended the domestic session at 7.1464 per dollar, its weakest such close since May 28, 2020 - mirroring broad falls in other currencies amid a sweeping rally by the dollar thanks in part to the U.S. Federal Reserve's rapid tightening of monetary policy.

The onshore yuan hit an intraday low of 7.1690, 14 pips away from the lower end of the trading band.

"The market is almost hitting the limit," said a trader at a foreign bank.

A second trader at a foreign bank said dollar buying was heavy as many corporate clients rushed to take the last chance to secure their forward dollar buying contacts before the risk reserve ratio hike comes into effect on Wednesday.

Still, market participants believe more policy actions will be rolled out should the yuan's weakness persist.

"Given the weak CNY level, it is likely that the PBOC will roll out measures to remove the market's one-side depreciation of CNY against the U.S. dollar in the near term," said Li Lin, head of global markets research for Asia at MUFG Bank.

Li expects further cuts to the amount of foreign exchange banks must hold as reserve, after a reduction earlier this month.

 

[Beast]

That is good news for our export!

 

[Hamartia Antidote]

That is good news for our export!

And not so good news for those who added the yuan to their currency reserves instead of dollars.

 

[F-22Raptor]

And not so good news for those who added the yuan to their currency reserves instead of dollars.

It’s also really bad for their GDP this year. With such a huge depreciation you won’t see much GDP growth.

 

[Chat SAMOSA]

Holy ghosts! I recall buying yuan at a bit over 6 a $ now it's over 7? And the pounds is almost parity!
My Uber rides in Blr are like 31 cents

 

[VkdIndian]

Chinese Yuan can never go in any direction unless planned by Emperor Xi.
Surprisingly our Chinese friends haven’t yet descended on this thread to declare first line of my comment.

Hopefully they are about to make a grand entry en-mass.

@etylo and his fronds, please don’t serve cow cola to Indians for this statement. We have enough of it already.

 

[ILC]

Yuan just follows CFETS basket currencies, every currency falls against USD. Yuan still doing better than Yen, and that's surprising.

 

[Kyle Sun]

A blatant shameless bandit boasting about how much money it has robbed.

 

[MH.Yang]

And not so good news for those who added the yuan to their currency reserves instead of dollars.

It’s also really bad for their GDP this year. With such a huge depreciation you won’t see much GDP growth.

That's because the USA is raising interest rates and China is cutting interest rates. The overnight lending rate of the Bank of America has reached 3%, and the overnight lending rate of the Bank of China is 0.75%.

Is the temporary rise of the US dollar exchange rate harmful to China? US capital cannot use the US dollar interest rate raising cycle to acquire Chinese assets. Because the Chinese govt has closed the import of foreign hot money, China's FPI will remain low in the US interest rate hike cycle.

The USA cannot maintain such high interest rates forever. Once American interest rates return to normal, China's GDP, which has been pulled down by the exchange rate, will return to its original position. The US will greatly damage its economic growth rate due to the interest rate increase cycle.




BTW: In fact, everyone in this post knows that this interest rate hike will cause great harm to the future American economy.
This interest rate increase will seriously hurt the stock market, property market and other asset platforms in the USA. It will also severely hurt the willingness of Americans to consume and invest. It will also significantly increase the debt ratio of the USA. If it were not for intolerable inflation, Americans would not choose to raise interest rates.
China's interest rate cut will not only reduce its debt, but also help export. To be sure, American capital can use the high dollar to harvest wealth around the world. But American capital can only purchase India, Japan and Europe at most, and they cannot enter China.
Finally, when the USA returns to normal interest rates, they will see a stronger China.