China’s yuan finds footing near 9-month lows as Beijing slows slide

Despite concerns about the economy and rising US yields, China’s yuan has found some footing near 9-month lows as Beijing takes steps to slow its slide. State-owned banks have conducted swaps in offshore markets to increase the cost of shorting the yuan, aiming to stabilize the currency. Moreover, the People’s Bank of China has set a stronger than expected daily yuan fixing, deviating from market estimates by 1,105 pips. These measures have helped the offshore yuan recover from Monday’s lows and settle stronger against the dollar.

Alvin Tan, head of Asia currency strategy at RBC Capital Markets, believes that these actions, combined with higher funding costs, will likely prevent further depreciation of the yuan in the near-term. The midpoint rate, which serves as a reference for yuan trading, was set at 7.1992 per US dollar.

However, despite these efforts, the yuan still weakened 1.22% against the midpoint, trading at 7.2870 per dollar. The rise in US Treasury yields, reaching levels not seen in over a decade, and concerns about capital outflows have put pressure on the yuan and other regional currencies. In comparison, the offshore yuan remains slightly weaker than the onshore spot.

Additionally, interbank rates in offshore yuan markets have surged, with two-week CNH HIBOR reaching the highest levels since October 2018. This increase is a result of the swaps conducted by state banks, further reflecting the measures taken to stabilize the yuan.

The focus now shifts to how the yuan will fare in the coming days, as investors closely monitor developments in the global financial markets and assess the impact of ongoing economic challenges. Any further actions by the central bank and market forces will play a crucial role in determining the future trajectory of the yuan.

In conclusion, as concerns about the economy and rising US yields persist, China’s yuan has found temporary support near 9-month lows as Beijing takes measures to slow its slide. State-owned banks conducting swaps and a stronger than expected daily yuan fixing are among the actions taken to stabilize the currency. However, external factors such as US Treasury yields continue to pose challenges. The market will closely observe future developments, including the impact of ongoing economic conditions and the response of the central bank, to assess the yuan’s future path.