The Yuan Breaks Crucial CNY/USD Support Level And Hits 19-Month Low

The situation continues to look bleak for China’s yuan. Hitting a 19-month low is problematic for the currency, and it seems the country will not recover just yet. Moreover, the new COVID-19 lockdowns continue to wreak havoc across China and hamper its economy. 

The Yuan Continues To Suffer

It has been a very tough time for the Chinese Yuan in recent years. Unfortunately, new market data confirms things will not improve soon either. Instead, the yuan seems to lose ground more quickly than before, primarily due to new COVID lockdowns imposed by the Chinese government. It is now at the lowest point since mid-October 2020, although it is likely to drop much lower in the coming weeks. 

Contributing factors to the yuan woes include slower export growth, unchanged import rates, and broader COVID-19 lockdowns. That latter aspect affects factory production, supply chains, and has led to a substantially decreased domestic demand for goods. A very alarming trend that may prove somewhat difficult to reverse unless something significant changes. 

China’s government remains committed to achieving growth, although that will prove tricky. Officials need to strike a balance between pushing exports and rebooting factory production, and ensuring COVID-19 doesn’t run rampant in the country. While the current lockdowns may seem severe, it has allowed China to keep the virus at bay, for the most part. Unfortunately, the country faces a jobless rate of 5.8%, the highest since May 2020. 

Royal Bank of Canada Asia FX Strategist Alvin Tan adds:

“Although the PBOC has been fixing USD/CNY spot at lower-than-expected levels in recent days, the fixes have still been at gradually higher levels. Thus, the PBOC is not standing in the way of renminbi depreciation, merely trying to reduce the volatility of the move.”