Yuan extends drop as PBOC’s weak fix worsens sentiment

BLOOMBERG

China’s yuan tumbled past the closely watched 7.2-per-dollar level and analysts are bracing for more losses after Beijing showed little resistance to the decline. The offshore yuan fell as much as 0.3% to 7.2007 to the greenback, the weakest since November. A lack of aggressive stimulus from authorities is fuelling a wave of selling in Chinese assets, with a gauge of the nation’s equities listed in Hong Kong heading for a third day of losses.
Investors are growing increasingly frustrated with Beijing’s reluctance to roll out more policy steps to shore up growth which has disappointed after the nation rolled back its Covid curbs. But some traders say the weak currency may be part of Beijing’s plan to support its economy as a depreciating yuan would help shore up demand for the nation’s exports.
“Markets are growing impatient over lack of follow-through on China stimulus,” said Christopher Wong, strategist at Overseas Chinese Banking Corp. Resistance for the offshore yuan is at 7.2150, he added.  “A timeline to look forward to is the Politburo’s semi-annual economic conference in end July for any major fiscal announcement. But in the meantime, the silence is deafening.”
The offshore yuan trimmed its losses to trade at 7.1980 as in Shanghai. The onshore yuan was around 7.1941. Major Chinese banks did not sell the dollar aggressively, although some exporters had begun to place orders to sell the greenback, which helped support the yuan, according to traders who asked not to be named as they are not authorised to speak publicly.
The People’s Bank of China (PBOC) set the yuan’s reference rate at 7.1795 per dollar, the weakest level since  November 29. The fixing limits swings in the onshore yuan by 2% on either side, and the move may suggest that authorities are willing to tolerate a further decline.
The yuan has slumped more than 4% over the last three months to trail all but one of its peers in Asia. Capital outflows from the onshore market and bets that the Federal Reserve will hike interest rates further are also weighing on the Chinese currency.
China’s economic recovery since the dismantling of its Covid curbs has been unimpressive, with the nation’s manufacturing sector contracting and retail sales trailing estimates in May. The call for more stimulus is growing, with state-run media running front-page articles  saying the central bank is likely to ease monetary policy further.