After a time of calm, China's currency exchange rate is expected to fall as the country slowly returns to work in the midst of an economic activity that has been severely dented by the global coronavirus crisis, analysts said Thursday.
On Wednesday, China's yuan weakened as strong global appetite for the US dollar strengthened the greenback and the People's Bank of China led the currency down through its daily fix.
As the Chinese yuan is not freely convertible under the capital account, the central bank has to buy a foreign currency that is produced by the country's trade surplus and foreign investment, adding funds to the money market.
These funds are a major predictor of international capital flows and domestic yuan liquidity across borders. Mainland China's stock market ended lower for the sixth trading day on Wednesday following declines in broader Asian markets as the rapidly spreading coronavirus continued to weigh on investor sentiment the world over.
The yuan has eased 0.6 percent against the US currency, far less than the 2 percent retreat in South Korea and the 3 percent drop in the Singaporean dollar. As much as 3.6 percent of the euro has tumbled.
The Chinese central bank set the midpoint rate of the daily trading band for the yuan at 7,0328 per USD before the market opened. It has been the currency's weakest such fix since Dec. 11, 2019 and weaker than an estimate of 7,0286 per dollar by Reuters.
Although the Chinese currency has been bolstered by the signing last the month of a phase one trade agreement between China and the US, analysts noted its resilience is unlikely to continue.
Market optimism is steadily waning, and exchange rates are facing greater uncertainty as China's workforce is slowly returning to their employment and normalizing shortages induced by soft trade over the Lunar New Year holiday, said Zhou Hao, Commerzbank's senior Asia emerging market economist.
The softer midpoint occurred despite fast US dollar gains. Growing U.S. yields and a global scramble for dollars fueled by rising concerns about coronavirus spread pushed the dollar up 1.41 percent on Tuesday against a basket of global peers.
In contrast, active sale on monitoring was triggered late afternoon in US Futures market. The extreme volatility in overseas markets has had a negative effect on China's financial markets due to the ongoing global emergency crisis, and a battle over oil prices.
