‘Bearish’ offshore yuan hits lowest in 17 months

China’s offshore yuan dropped to its weakest in 17 months yesterday and neared the symbolic level of 6.7 to the US dollar, as foreign investors remained bearish towards Beijing with coronavirus lockdowns weighing on the outlook for economic growth.

The offshore yuan weakened to as much as 6.6979 per US dollar in early afternoon trade, its lowest since November 2020.

The onshore market is closed from Monday to Wednesday this week due to the five-day Labour Day holiday.

“If [offshore yuan] 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 US dollar ahead of the US Federal Reserve’s policy meeting this week were major impacts on the offshore yuan’s performance.

The onshore yuan closed on Friday at 6.609 per US dollar.

The yuan has been tumbling in recent weeks as fears grow about the economic impact of extended lockdowns in many mainland cities and expectations for aggressive US 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 said China would step up policy support to stabilise the slowing economy.

Though it offered no details, it helped shore up sentiment in the yuan and battered stock markets. But moves this week suggest that investors were expecting more.

“I think foreign investors are losing some confidence in the Chinese government because they have already signalled for more measures, but these pledges haven’t reversed the bearish sentiment towards the Chinese economy,” Cheung said.