Renminbi falls to seven-month low against dollar on economic worries

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China’s renminbi fell to a seven-month low against the dollar as rising US interest rates put pressure on the currency amid market concerns over slowing domestic growth and lower exports.

The Chinese currency has been under pressure since the US Federal Reserve began raising rates last year, pushing yields on US Treasuries higher than their Chinese counterparts and prompting global investors to dump holdings of renminbi-denominated debt. has been inspired.

But the renminbi has continued to decline this month, even after the US central bank opted to skip an interest rate hike in June.

The weaker exchange rate will help China’s export-dependent economy, making it cheaper for major trading partners to buy the country’s goods.

But it also creates challenges for other Chinese corporates that do business internationally, including highly for-profit property developers who have offshore debt that must be repaid in dollars.

On Monday, the currency fell as much as 0.6 percent to Rmb7.2197 against the greenback as markets in China reopened after a national holiday – during which official data showed tourist spending declined to match pre-pandemic levels. had failed.

This decline has caused the renminbi to depreciate about 5 percent against the dollar since late March. The currency posted its worst quarterly decline since the country’s soft run against the US dollar ended in 2005, as well as its sharpest decline since last year’s widely imposed COVID-19 lockdown that forced China There has been a sharp decline in The economy almost came to a standstill.

Analysts said the continued weakness in China’s currency reflects growing concerns about the fundamentals underpinning the country’s economic growth.

“The Fed capped in June but the renminbi is still weakening – it’s a very different interest rate story,” said Mansoor Mohiuddin, chief economist at Bank of Singapore.

Mohi-Uddin said concerns over Chinese growth had been weighing on the currency since the start of the second quarter, but Fed pressure has been replaced by worries over exports, which plunged a surprising 7.5 percent year-on-year last month. was registered. ,

“The economic recovery internally and concerns about the external environment – these are the two factors that are weakening the currency,” he said.

The latest decline for the renminbi also came despite signs that the country’s central bank is taking small steps to slow the pace of depreciation. On Monday, the People’s Bank of China set the midpoint around which the currency could move up to 2 percent in either direction, which is stronger than traders expected.

But analysts said there was no sign of substantial capital flight or market panic that would prompt the PBOC to intervene meaningfully to try to stem the selloff in foreign exchange markets.

Guan Tao, global chief economist at Bank of China International and former Foreign State Administration official, said, “Policy makers have so far only warned against speculation, but have not taken action to intervene because the market is perfectly smooth.” Running from.” exchange.

He added that although a weaker currency can help improve exports by making outbound shipments cheaper, it is “not the end goal” of policymakers. “It does not mean that the renminbi will depreciate forever.”