Yuan ends at 19-month low, sluggish trade data reaffirms lockdown pain

CHINA'S yuan extended losses to close at a near 19-month low against a firmer US dollar on Monday (May 9), breaching key thresholds, as sluggish April trade data reaffirmed market worries that Covid-19 induced lockdowns across the country are taking a toll on economy.

The onshore spot yuan accelerated pace of losses after falling past the psychologically-important 6.7 per US dollar before finishing domestic trading session at 6.7202, the weakest such close since Oct 15, 2020, down 551 pips, or 0.82 per cent, from previous late night close of 6.6651 last Friday.

Its offshore counterpart also touched a more than 1-1/2-year low to breach the key 6.75 per US dollar level and traded at 6.7680 per US dollar around 0830 GMT.

The weakness came as China's export growth slowed to single digits last month, while imports were unchanged as tighter and wider Covid curbs halted factory production, disrupted supply chains and triggered a collapse in domestic demand.

Pro-growth pledges made by the government and the existing stringent virus containment measures have posed a policy dilemma, as effectively highlighted by Premier Li Keqiang when he pushed for government departments to prioritize helping businesses retain jobs, said Stephen Innes, managing partner at SPI asset management.

China's jobless rate rose to 5.8 per cent in March, the highest since May 2020.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.6899 per US dollar, 567 pips or 0.85 per cent weaker than the previous fix 6.6332, the weakest since Nov 3, 2020.

Similar to last week, the official guidance came in firmer than market projections. And, Monday's midpoint fixing was 51 pips stronger than Reuters' estimate of 6.6950.

"Although the PBOC has been fixing USD/CNY spot at lower-than-expected levels in recent days, the fixes have still been at gradually higher levels. Thus, the PBOC is not standing in the way of renminbi depreciation, merely trying to reduce the volatility of the move," said Alvin Tan, Asia FX strategist at Royal Bank of Canada.

Still, many market participants argued that yuan weakness was likely to persist in light of aggressive US tightening and domestic economic slowdown.

"The strength of the US dollar and China's Covid-19 policy and associated implementations were and were likely to continue to be the main themes affecting CNY and other Asian currencies in near term," said Li Lin, head of global markets research for Asia at MUFG Bank.

Li cut her forecast for China's full-year GDP growth to 4.3 per cent from 5.2 per cent previously, attributing the revision to China's reiteration of its zero-Covid policy and continued strict implementation by local governments.

Shanghai authorities have tightened city-wide lockdown measures they imposed more than a month ago, prolonging into late May an ordeal that the capital Beijing wants to avoid by turning mass testing into an almost daily routine. REUTERS