As the Covid outbreak extends to Beijing, the yuan fell to its lowest level in a year, with the central bank standing by as traders move bearish on the currency.
The offshore yuan plummeted as far as 1.1% to 6.5979 per dollar, the lowest level since November 2020, as the People’s Bank of China refrained from expressing displeasure with the daily rates.
For the second day in a row, the currency has dropped more than 1.1% intraday, with little indication that authorities will intervene to stop the slide. In the onshore market, the currency also declined. The Yuan was trading at 6.5549 at the time of writing.
What you should know
- The worsening Covid outbreak in China has sparked a selloff across the country’s markets, with the yuan falling more than 2% last week, the most since a surprise devaluation in August 2015.
- The authorities ordered forced Covid tests in a Beijing neighbourhood and shut down several parts of the city, indicating that the strict lockdown witnessed in Shanghai will be reproduced, adding to rising economic concerns.
- Concern that Beijing could join Shanghai in a strict COVID-19 lockdown weighed on Chinese stocks on Monday, dragging the MSCI’s index for emerging market stocks 2.4% lower in its worst one-day percentage fall since mid-March.
- The MSCI emerging market index slid into correction territory, down 10% from its early April peak, after China’s plunged nearly 5% to a 23-month low, while the Shanghai composite index shed 5.2%.
- As major economies, such as the United States, prepare for more severe tightening cycles to battle inflationary pressures, emerging markets have come under pressure.
- The dollar has risen to two-year highs against its rivals as money markets expect the US Federal Reserve to hike interest rates by a half percent at its next two sessions.
- Emerging market exporters’ currencies, such as the rand of South Africa, the real of Brazil, and the peso of Colombia, had outperformed non-exporters’ currencies as Russia’s invasion of Ukraine spurred a commodities price rally, which has since cooled and shown to be a temporary boost.
