Yuan losses deepen highlighting limits of PBOC currency defense


China’s yuan is set for its longest losing streak since June even after the central bank sought to support the currency with stronger-than-expected fixings in every single session for nearly a month.
The onshore yuan slid for the fourth straight day to trade just 0.5% shy of the weak end of its allowed trading range with the greenback following the Federal Reserve’s jumbo rate hike. The currency can trade up to 2% on either side of the fixing. The dollar-yuan’s discount to the fixing has also widened to 1,000 pips, a gap unseen since 2019. The moves suggest that Beijing’s efforts to stem the currency’s depreciation have done little to restore confidence.
“The fixing bias is not reining in the upswing of the dollar-yuan rate much and the current exchange rate regime would come under more pressure when the spot reaches the upper bound of the trading band,” said Fiona Lim, senior foreign-exchange strategist at Malayan Banking Bhd.
“There are still ammunition that the PBOC can tap on to slow the yuan depreciation
but the central bank is clearly trying to pace this out, especially when external forces of global growth fears and policy tightening are dominant.”
The yuan has tumbled more than 10% this year. It’s heading for the worst annual performance since 1994 as Beijing eases monetary policy to
aid an economy hit by Covid curbs and tumult in the property sector.
The Fed’s 75-basis-point hike on Wednesday only made it worse, as the move undermines the appeal of yuan-denominated assets and drives outflows. Chinese banks kept their main lending rates unchanged this week but forecasts are for a cut going forward.
The People’s Bank of China set the fixing at 6.9798 per dollar, 850 pips stronger than
the average estimate in a Bloomberg survey of analysts and traders.
That’s the largest ever bias on the stronger side and marks 21 straight days of stronger-than-expected fixings.

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