The onshore yuan fell to the weakest level against the dollar since the 2008 global financial crisis, amid an incessant advance in the dollar and speculation that China is toning down its support for the local currency.
The onshore currency fell 0.2% to 7.1955 per dollar, a level that was never seen in 14 years, while the offshore unit fell to the lowest level in data going back to 2010. The People's Bank of China set a daily reference rate that was 444 higher than the average estimate in a Bloomberg survey of analysts and traders. The bias was the smallest in two weeks, a sign that Beijing could be easing its support for the currency amid a surge in the dollar and a plunge in global exchange rates.
Fiona Lim, senior foreign exchange strategist at Malayan Banking Bhd, said the fix will allow more room for market forces to drive the yuan based on monetary policy divergence and market momentum. We can't help but we know that the move this morning could cause drags on other non-dollar currencies that are already under pressure. The onshore yuan has fallen by more than 4% against the dollar this month and is on track for the worst annual loss since 1994. The Fed hikes rates as the nation's monetary policy with the US increases, the currency is under pressure as the Federal Reserve hikes rates. Fed officials including St. Louis Fed chief James Bullard pushed for higher interest rates in the US to restore price stability. Beijing is taking accommodative stance despite the rising risk of deflation as demand crumbles due to an ongoing property crisis and Covid restrictions.
The central bank stepped up its efforts to support the yuan, though the moves did not yield any results. It set stronger than expected fixings for 25 straight sessions, the longest streak on record since Bloomberg started the survey in 2018. It has been imposed a 20% risk reserve requirement on currency forward sales by banks this week to make it more expensive to short the yuan. That was after a move to reduce foreign-currency reserve requirements for the bank.
It is not just China that policymakers in Japan, South Korea and India are stepping up their currency defense as the dollar rally shows few signs of easing. A note from Nomura Holdings Inc. said Asian central banks may activate the second line of defense, such as macroprudential and capital accounts tools. Taiwan officials raised the possibility of foreign-exchange controls and a ban on stock short sales if capital outflows worsen.