Wednesday, December 6

China’s yuan hits 27-month low as dollar buoyed by hawkish Fed

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SHANGHAI — China’s yuan fell to a

27-month low against a surging dollar on Thursday after the US

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Federal Reserve delivered another 75 basis-point interest rate

rise and signaled more hikes in coming months.

Fed Chair Jerome Powell vowed on Wednesday that he and his

fellow policymakers would “keep at” their battle to beat down

inflation. In a sobering new set of projections, the Fed

foresees its policy rate rising at a faster pace and to a higher

level than expected.

The Fed’s more hawkish stance than many market participants

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had anticipated pushed the dollar to a fresh two-decade high and

put pressure on emerging market currencies.

Prior to market opening, the People’s Bank of China (PBOC)

set the midpoint rate at 6.9798 per dollar, 262 pips

or 0.38% weaker than the previous fix of 6.9536, the softest

since Aug. 4, 2020.

But the official guidance came in much stronger than market

projections for a 21st straight trading day, traders and

analysts said, noting this was part of an official attempt to

stem fast yuan declines. Thursday’s midpoint was 148 pips firmer

than Reuters’ estimate of 6.9946.

“The dollar was too strong,” said Ken Cheung, chief Asian FX

strategist at Mizuho Bank.

“This round of yuan depreciation was triggered by the

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buoyant dollar, and the midpoint fixing should remain the key

tool (to stabilize the market).”

In the spot market, the onshore yuan opened at

7.0801 per dollar and fell a low of 7.0954, the weakest level

since June 17, 2020. It traded at 7.0891 by midday, 414 pips

softer than the previous late session close.

Its offshore counterpart breached the key 7.1 per

dollar level before trading at 7.0977 per dollar around midday.

“The PBOC is likely to continue to lean against the move (in

USD/CNY) higher, but is unlikely to try to stabilize USD/CNY if

the broad USD continues to gain,” Lemon Zhang, FX strategist at

Barclays, said in a note.

“Going forward, we expect the PBOC to adopt more

counter-cyclical policy choices from its toolkit, especially

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ahead of the Party Congress on October 16, such as further FX

reserve requirement ratio (RRR) cuts and stronger CNY bias in

the daily fixing.”

Zhang expects the yuan to hit 7.15 by the fourth quarter of

this year.

China lowered the FX RRR earlier this month to slow the pace

of yuan losses, and investors widely expect the authorities to

roll out more policy measures should the weakness be sustained.

Some currency traders said the 7.1 per dollar level should

continue to offer strong resistance to the onshore market, as it

was not far from the lower end of the daily trading band of


China’s onshore yuan can only trade in a narrow range of 2%

around the daily midpoint fixing, and Thursday’s guidance rate

capped the range to between 6.8402 and 7.1194.

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“The hard defense line could be around 7.18 per dollar for

this round of depreciation,” said a trader at a foreign bank.

The trader said the level was last hit during the height of

Sino-US trade tensions in 2019 and has also acted as a floor

for the yuan since the global financial crisis of 2008.

The yuan market at 0400 GMT:


Item Current Previous Change

PBOC midpoint 6.9798 6.9536 -0.38%

Spot yuan 7.0891 7.0477 -0.58%

Divergence from 1.57%


Spot change YTD -10.36%

Spot change since 2005 16.75%


Key indexes:

Item Current Previous Change

Thomson 0.0


CNH index

Dollar index 111.614 110.642 0.9

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2 percent from official midpoint rate it sets each



Instrument Current Difference

from onshore

Offshore spot yuan 7.0977 -0.12%


Offshore 6.9703 0.14%




*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.


(Reporting by Winni Zhou and Brenda Goh; Editing by Ana

Nicolaci da Costa and Richard Pullin)



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