SHANGHAI: China's yuan resumed its weakening trend against the dollar on Friday (Oct 21), approaching lows hit during the global financial crisis of 2008 as the greenback soared on heightened expectations of more US interest rate hikes.
The yuan gained some support on Thursday after a Bloomberg report that China is considering reducing the COVID-19 quarantine time for inbound travelers, citing unidentified sources, though other details were scant.
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.
In the spot market, the onshore yuan opened at 7.23 per dollar and was changing hands at 7.25 at midday, 302 pips weaker than the previous late session close and 1.8 per cent softer than the midpoint.
The yuan hit an intraday low of 7.248 in morning trade, and was not far from a 14-year low of 7.252 hit in late September.
If the yuan finishes the late-night session at the midday level, it would have lost 0.74 per cent for the week, bringing the year-to-date loss to 12.3 per cent.
Traders said yuan weakness may persist, reflecting broad dollar strength in global markets as Federal Reserve officials showed no signs of backing down from their hawkish rhetoric.
Meanwhile, Chinese authorities continued to set firmer-than-expected yuan guidance in a bid to keep the currency stable amid the ongoing Communist Party Congress, market participants added.
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 6.98 to 7.26, 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 given the strong fixing bias that caps the onshore," analysts at Maybank said in a note.
"Such signs of depreciation pressure could also spill over to regional EM FX," they said, noting Friday marks the 13th straight session that the PBOC set "almost flat" midpoint guidance.
The offshore yuan, which trades more freely to reflect market expectations, was trading at 7.26 per dollar as of midday, 0.25 per cent weaker than its onshore counterpart.