China's yuan drops to its lowest level in two years as a result of strengthening US dollar

BEIJING: The Chinese yuan fell to a two-year low against the dollar on Monday, in response to a general strengthening of the dollar in international markets and a rise in coronavirus infections across the country.

Concerns about disruption to economic activity came after Chengdu, a city in southwest China, announced an extension of restrictions related to the lockdown, and Shenzhen, a tech hub in southern China, announced it would begin on Monday. Anti-virus restrictions will be adopted.

The People's Bank of China (PBOC) set the midpoint rate at 6.8998 per US dollar before the market opened, 81 basis points lower than the previous fix of 6.8917. A higher number indicates that the currency is losing value against the dollar.

The PBOC on Monday issued higher-than-expected official guidance for the ninth consecutive trading day, prompting what many market observers believe was an official effort to stem excessive yuan weakness. The fixing was 155 pips stronger, stronger than Reuters' estimate of 6.9153.

According to Tommy Xie, Head of Greater China Research at OCBC Bank, the recent stronger-than-expected fixing corroborated the idea that China may have a mechanism to slow the pace of [yuan] depreciation as part of sentiment management. There may be a system. There may be a system. There is a strong incentive. Asset disturbances and growing uncertainty from the COVID situation."

The onshore yuan opened at 6.9155 per dollar in the spot market and hit a low of 6.9350, the lowest level since August 17, 2020. It was trading at 6.9319 till noon, 304 pips weaker than the close of the previous session. According to many currency traders, the yuan's fall in morning trading was a reaction to the strengthening of the dollar, which hit a two-decade high against its main trading partners.

Markets were also hotly debated whether the yuan would be forced to hit the psychologically important 7-per-dollar level by a rising dollar and a domestic economic slowdown.

Markets were also hotly debated whether the yuan would be forced to hit the psychologically important 7-per-dollar level by a rising dollar and a domestic economic slowdown.

According to Lee, one of the market movers for the yuan this week could be the August trading data, which is due on Wednesday.

China's export growth slowed in August due to weak global demand, and subpar consumption and the real estate crisis also slowed import growth, according to a Reuters poll released on Monday, raising concerns about the health of the economy. , walked away.

The average estimate of 26 economists surveyed estimates that after rising 18.0% in July, exports in August would have grown 12.8% from a year earlier.

The world's second-largest economy continued to grow by double digits, which indicated that exports were still a major factor in that growth. However, analysts expect export growth to slow as rising inflation weakens global demand and China's zero-Covid policy disrupts production and business activity.

“August shows signs of slowing export growth. Domestically, trade-related cargo throughput (including imports and exports) in China's eight major ports grew 0.9% year-on-year in August [20], up from 14.7 in July. Citi Analysts wrote in a note comparing %.

The new export orders sub-index in both official and private sector factory activity surveys continued to decline last month, indicating a decline in exports.

As per the survey, imports grew by 1.1% in July, as against the expected growth of 2.3%.

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