Yuan – also known as yuan — lost about 0.5% against the dollar on Monday in offshore trading outside mainland China. It was trading at 6.9277, its lowest level since August 2020.
The yuan in land trading also weakened significantly, dropping 0.6% from the previous session.
“The broad strength of the US dollar is likely to continue to be supported by the Fed’s hawkish statements and divergence of growth in favor of the US dollar,” Citi analysts said in a note to clients on Monday, adding that this will continue to put pressure on Asian currencies.
They added that the yuan’s recent weakness was also due to “worse-than-expected economic data and a rate cut.”
Earlier this month, the People’s Bank of China unexpectedly cut interest rates after new data showed the economy lost momentum last month as Covid lockdowns resumed and the housing market slump deepened.
The offshore yuan has fallen 3% against the US dollar this month and is down 9.4% since March.
The yuan’s decline since March was driven by a weakening of the yuan’s bullish positioning and large capital outflows, Citi analysts said, as traders were concerned that growth had been hurt by Covid-related restrictions.
Another factor from the government, as the Chinese authorities have been tolerant of a “gradual” weakening of the yuan, which could benefit exporters by making the prices of their goods more competitive.
“While this is unlikely to push the authorities into active currency weakness, they are likely to allow market forces to weaken or depreciate the yuan,” they said.
Citi analysts predict that the yuan will eventually hit 6.95 against the US dollar.