SHANGHAI — China’s yuan slumped to a near
two-year low against the dollar on Monday, as Beijing stepped up
easing measures to arrest an economic slowdown at a time the
US Federal Reserve was set to continue its aggressive monetary
Widening policy divergence, along with worries over weaker
economic fundamentals, raised the risks of capital outflows and
yuan depreciation, currency traders said.
Yuan traded in both onshore and offshore
quickly slipped after China cut its benchmark lending rate and
lowered the mortgage reference by a bigger margin, adding to
last week’s easing measures, as Beijing boosts efforts to revive
an economy hobbled by a property crisis and a resurgence of
The onshore yuan opened at 6.8202 per dollar and
touched a low of 6.8308, the weakest level since Sept. 25, 2020.
By midday, it was changing hands at 6.8243, 73 pips weaker than
the previous late session close.
Its offshore counterpart fell to a near two-year low of
6.8520 before trading at 6.8394 at noon.
Traders said the gap between onshore and offshore widened
further to 151 pips in morning deals, a sign that depreciation
might have picked up as the offshore yuan trades
more freely and better reflects market fundamentals.
“Overall, the RMB depreciation is the reflection of monetary
policy divergence, interest rate differential and market pricing
of bleak China growth outlook, instead of a cause of emerging
market crisis,” said Ken Cheung, chief Asian FX strategist at
“We reckon that the People’s Bank of China (PBOC) will
tolerate more RMB depreciation at this stage.”
Prior to market opening, the PBOC set the midpoint rate
at 6.8198 per dollar, 133 pips or 0.2% weaker than
the previous fix of 6.8065, the softest since Sept. 28, 2020.
“The unexpected slowdown in the economy in July was rather
broad based and the PBOC could remain in easing mode as long as
the economy is under pressure from zero-COVID strategy, weak
property sector and more recently, power crunch in Sichuan and
Chongqing,” analysts at Maybank said in a note.
The yuan market at 0401 GMT:
Item Current Previous Change
PBOC midpoint 6.8198 6.8065 -0.20%
Spot yuan 6.8243 6.817 -0.11%
Divergence from 0.07%
Spot change YTD -6.88%
Spot change since 2005 21.28%
Item Current Previous Change
Dollar index 108.135 108.169 0.0
*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
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.8394 -0.22%
Offshore 6.7556 0.95%
*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 Shri Navaratnam)