In offshore trading, the yuan has fallen below the 7-dollar mark for the first time since December, due to discouraging economic indicators in China. Approximately six months after China abruptly lifted its COVID-related restrictions, the optimism regarding the country’s economic recovery that supported yuan assets is now facing reality. The Chinese currency has dropped over 4% since reaching its peak in January as traders lose patience over weak economic data and bet that Beijing will eventually introduce monetary stimulus to support the recovery.
The People’s Bank of China has yet to show any activity in the currency market or in terms of liquidity. On Wednesday, it refrained from support measures, setting a stricter base rate for the yuan and not lowering interest rates on policy loans earlier this week.
According to Khoon Goh, head of Asia Research at Australia & New Zealand Banking Group Ltd., there are currently no clear signs that the People’s Bank of China is taking active measures to prevent yuan weakening. This, in turn, reinforces bearish sentiment among traders. Khoon Goh also reminds that the bank has a variety of tools at its disposal, which could be utilized, and market participants should exercise caution and not overestimate the scale of yuan weakening.
