China’s yuan fell on Friday to its weakest level against the dollar since the global financial crisis of 2008, despite attempts by major state-owned banks to stabilise the market.
Sources told Reuters that state banks sold dollars in the onshore foreign exchange market to prevent the spot price from weakening past the 7.25 per dollar level.
State banks usually trade on behalf of the central bank in China’s foreign exchange market, but they can also trade for their own purposes or execute orders for corporate clients.
Still, the onshore yuan finished the domestic trading session down 0.46% on the day at 7.2494 per dollar, the weakest such close since January 14, 2008.
For the week, it looked set to fall 0.78% as the surging dollar continued to batter emerging market currencies, taking its depreciation so far this year to 12.3%.
Traders said yuan weakness may persist, reflecting broad dollar strength as Federal Reserve officials show no signs of backing down from their hawkish rhetoric on rate hikes, while Chinese policymakers try to support the sputtering economy.
Meanwhile, Chinese authorities continued to set firmer-than-expected yuan guidance in a bid to keep the currency stable during the politically sensitive Communist Party Congress, market participants added.
Prior to the market opening on Friday, the People’s Bank of China (PBOC) set the midpoint rate at 7.1186 per dollar, 2 pips firmer than the previous fix 7.1188.
The stronger daily guidance, which allows the onshore yuan to trade in a narrow range of 2% on either side of the midpoint, has effectively capped the downside limit for the yuan, said a trader at a foreign bank.
Friday’s fixing allowed the onshore yuan to trade in a range of 6.9762 to 7.2610, and the midday price was less than 0.2% away from hitting the lower end of the trading band.
“The USD/CNH-USD/CNY premium could be widening more persistently given the strong fixing bias that caps the onshore,” analysts at Maybank said in a note.
“Such signs of depreciation pressure could also spill over to regional EM FX,” they said, noting Friday marked the 13th straight session that the PBOC had set an “almost flat” midpoint guidance.
The offshore yuan , which trades more freely to reflect market expectations, was trading at 7.2721 per dollar around 0830 GMT.