China's yuan nears 2008 financial crisis as dollar surges

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China's yuan nears 2008 financial crisis as dollar surges

China's yuan resumed its weakening trend against the dollar on Friday, approaching the lows hit during the 2008 global financial crisis, as the dollar soared on expectations of more U.S. interest rate hikes.

On Thursday, the yuan gained some support after a Bloomberg report said that China is considering reducing the COVID- 19 quarantine time for inbound travelers, citing unidentified sources, though other details were not clear.

Prior to market opening on Friday, the People's Bank of China PBOC set the midpoint rate at 7.1186 per dollar, 2 pips firmer than the previous fix 7.1188.

The spot market opened at 7.2320 per dollar and was changing hands at 7.2462 at midday, 302 pips weaker than the previous late session close and 1.8 per cent softer than the midday.

The yuan hit an intraday low of 7.2479 in morning trade, and was not far from a 14 year low of 7.2521 hit in late September.

If the yuan finishes the late night session at midday, it would lose 0.74 per cent for the week, bringing the year-to-date loss to 12.3 per cent.

Traders said weakness may persist, reflecting broad dollar strength in global markets, as Federal Reserve officials showed no signs of backing down from their hawkish rhetoric.

Market participants said that Chinese authorities continued to set firmer than expected guidance in a bid to keep the currency stable amid the ongoing Communist Party Congress.

The stronger daily guidance, which allows the onshore yuan to trade in a narrow range of 2 per cent on either side of the midpoint, has effectively capped the downside limit for the yuan, said a trader at a foreign bank.

Friday's fixing allows the onshore yuan to trade in a range of 6.9762 to 7.2610, and the midday price was less than 0.2 per cent away from hitting the lower end of the trading band.

The USD CNH-USD CNY premium could be widening more persistently due to the strong fixing bias that caps the onshore, analysts at Maybank said in a note.

The PBOC set almost flat mid-point guidance on Friday, but they said that signs of depreciation pressure could also spill over to regional EM FX.

The offshore yuan, which trades more freely to reflect market expectations, was trading at 7.2640 per dollar as of midday, a 0.25 per cent weaker than its onshore counterpart.

The spot yuan is trading stronger than the midpoint. The exchange rate can be raised or fall 2 per cent from the official midpoint rate it sets each morning by the People's Bank of China PBOC.

Non-deliverable forwards are settled against the midpoint, so the figure shows the difference from PBOC's official midpoint.