Renminbi falls to weakest since 2008 on signs China is easing support for currency

HONG KONG - The onshore renminbi fell to the weakest level against the US dollar since the global financial crisis in 2008, amid an incessant advance in the greenback and speculation that China is toning down its support for the local currency.

The onshore renminbi weakened 0.2 per cent to 7.1955 per dollar, a level unseen in 14 years, while the offshore unit slid to the lowest level in data going back to 2010.

The People's Bank of China (PBOC) set a daily reference rate that was 444 pips stronger than the average estimate in a Bloomberg survey with analysts and traders. The bias was the smallest in two weeks, a sign that Beijing could be easing its support for the currency amid a surge in the US dollar and plunge in global exchange rates.

"The fix allows more room for market forces to drive the yuan based on monetary policy divergence and market momentum," said Ms Fiona Lim, a senior foreign exchange strategist at Maybank in Singapore. "This does not mean that PBOC will not deploy other tools to prop up the yuan. We cannot help but note that the move this morning could contribute to drags on other non-dollar currencies that are already under pressure."

The onshore renminbi has fallen more than 4 per cent against the dollar this month and is on track for its worst annual loss since 1994. The currency is under pressure as the nation's monetary policy with the United States diverges further as the Federal Reserve hikes rates.

Fed officials including St Louis Fed chief James Bullard on Tuesday pushed for higher interest rates in the US to restore price stability. In contrast, Beijing is maintaining an accommodative stance amid the rising risk of deflation as demand crumbles under the weight of an ongoing property crisis and Covid-19 restrictions.

The central bank stepped up its efforts to support the renminbi, though the moves yielded limited results. It set stronger-than-expected renminbi fixings for 25 straight sessions, the longest streak on record since Bloomberg started the survey in 2018.

Earlier this week, it imposed a risk reserve requirement of 20 per cent on currency forward sales by banks to make it more expensive to short the renminbi. That is after an earlier move to reduce the foreign currency reserve requirement for banks.

Policymakers in Japan, South Korea and India are also stepping up their currency defence as the dollar's rally shows few signs of easing. Asian central banks may activate the "second line of defence" such as macroprudential and capital accounts tools, according to a note from Nomura Holdings. Taiwan officials on Tuesday raised the prospect of foreign exchange controls and a ban on stock short sales if capital outflows worsen significantly. BLOOMBERG