Renminbi Crashes to 2007 Low Following Leadership Shift
(26 October 2022 – China) China’s currency has depreciated by 13 percent in 2022 to its weakest level against the US Dollar since 2007.
The People’s Bank of China (PBoC) sets its midpoint of trading band at the lowest level since 2007. China’s renminbi (RMB) has come under immense selling pressure as concerns over President Xi Jinping’s appointment of a harder line leadership group and economic recession fears transfer from share markets into foreign exchange (FX).
Already negatively impacted by a widening interest rate differential with the US the RMB/USD slid by 0.6 percent this week to 7.3084. The fall follows the conclusion of the Chinese Communist party congress in Beijing in which Xi disturbed global investors by filling China’s senior leadership with loyalists focused more on national security and strict zero-COVID-19 policies over economic growth market stimulus.
The PBoC and China’s FX regulator also raised the maximum limit on cross-border financing for Chinese corporates, encouraging companies to tap offshore debt capital markets in a shift that could support foreign direct investment and alleviate sustained RMB selling pressure.
“Something had to give following the central bank’s decision to set the trading band markedly lower on Tuesday after keeping it steady during the party congress. The PBoC had been defying reality for about three weeks in terms of the trading band’s midpoint” commented Westpac Senior Currency Strategist, Sean Callow.
“The RMB exchange rate was touching the weak end of the trading band by the close of trading on Monday, meaning that unless the PBoC was willing to intervene in markets directly, the best option they had was to set a more realistic midpoint” Callow added.