The yuan — also known as the renminbi — lost about 0.5% against the dollar on Monday in offshore trading outside mainland China. It traded at 6.9277, the lowest level since August 2020.
The yuan in onshore trading also weakened significantly, down 0.6% from the previous session.
“Broad US dollar strength will likely remain supported by hawkish Fed messaging and growth divergence in favour of the US dollar,” Citi analysts said in a note to clients on Monday, adding that this will continue to pressure Asian currencies.
The yuan’s recent weakness has been also driven by “worse-than-expected economic data and rate cut,” they added.
Earlier this month, the People’s Bank of China unexpectedly cut interest rates, after new data showed the economy losing steam last month because of renewed Covid lockdowns and a deepening property downturn.
The offshore yuan has fallen 3% versus the US dollar this month and was down 9.4% since March.
The yuan’s decline since March had been triggered by the unwinding of bullish yuan positioning and large capital outflows as traders were concerned over growth hit from zero-Covid restrictions, the Citi analysts said.
Another driver is from the government’s side, as Chinese authorities were tolerant of a “gradually” weaker yuan, which can benefit exporters by making the price of their goods more competitive.
“While this is unlikely to push authorities to pursue active currency weakness, they are more likely to allow for market forces driving the renminbi weaker or underperform,” they said.
The Citi analysts forecast the yuan to eventually reach 6.95 against the US dollar.
