China sets yuan fix weaker than 6.9 a dollar, unseen since 2020

CHINA set its reference rate for the yuan weaker than 6.9 per dollar for the first time in two years, setting the stage for further depreciation in the currency.

The People’s Bank of China set the fix at 6.9096 per dollar on Tuesday, the weakest level in more than two years. The reference rate, however, still came at a higher-than-expected level for a 10th straight day, the longest run of fixings with a stronger bias since 2019.

“A fixing above 6.90 level is a signal of PBOC not defending any specific levels for now but the fix is still notably stronger-than-expected, signaling its intention to slow the pace of depreciation,” said Peiqian Liu, an economist at NatWest Markets.

The level of 6.9 is important for the fixing as it’s seen as the last major barrier before the yuan crosses the psychological milestone of 7, which Beijing defended aggressively during its trade war with the US. The offshore yuan slumped 1.8% in a single day as the People’s Bank of China set the fixing weaker than 6.9 in August 2019, after holding it stronger than that level for more than two months.

The yuan still remains under pressure to fall as the PBOC’s accommodative stance in the face of aggressive Federal Reserve rate hikes drives outflows from China. That runs counter to China’s efforts to stabilize the currency ahead of the twice-a-decade party reshuffle. –BLOOMBERG