Offshore yuan weakens to late 2020 lows as lockdowns weigh

HONG KONG: China's offshore yuan dropped to its weakest in 17 months on Tuesday, and neared the symbolic level of 6.7 to the dollar, as foreign investors remained bearish towards Beijing with COVID-19 lockdowns weighing on the outlook for economic growth.

The offshore yuan weakened to as much as 6.6979 per dollar in early afternoon trade, its lowest since November 2020. The onshore market is closed from Monday to Wednesday this week.

"If CNH breaches the 6.7 level we could see some policy reaction or some comments from China, because if they allow such kind of escalating bearish sentiment in the offshore market, it will eventually affect the onshore market," said Ken Cheung, chief Asian FX strategist at Mizuho.

He said foreign investors' concerns over the health of the Chinese economy and an elevated dollar ahead of the U.S. Federal Reserve's policy meeting this week played main roles in the dollar-offshore yuan performance.

The onshore yuan closed on Friday at 6.609 per dollar.

The Chinese currency has been tumbling in recent weeks as fears grow about the economic impact of extended COVID-19 lockdowns in many Chinese cities and expectations for aggressive U.S. interest rate rises. Global investment houses have rushed to cut their yuan forecasts.

However, both the onshore and offshore currency strengthened on Friday afternoon after the Politburo, a top decision-making body of the ruling Communist Party, said China will step up policy support to stabilise the slowing economy.

Though it offered no details, it helped shore up sentiment in the yuan and battered Chinese stock markets.

But moves this week suggest that investors are expecting more.

"I think foreign investors are losing some confidence in the Chinese government because they have already signaled for more measures, but these pledges haven't reversed the bearish sentiment towards the Chinese economy," said Cheung. - Reuters