Title: Chinese Yuan Tumbles After PBoC Rate Cut, Fed Fears Hit Asia FX

September 19, 2022 12:04 AM ET

By: AnalysisWatch

China's yuan sank further below key levels Monday after further monetary easing in the country, while broader Asian currencies fell ahead of a Federal Reserve meeting later in the week.

The yuan fell 0.4 percent to a two-year low of 7.0080 per dollar, marking the currency's second day below the psychologically significant level of 7. The drop came despite the central bank setting an extremely hawkish midpoint.

The People's Bank of China cut the repo rate on Monday and also increased liquidity injections into the economy, in an effort to boost growth that has been severely affected by the COVID-related blockages.

The central bank is now trying to strike a balance between supporting economic growth and stemming further losses in the yuan. The bank's series of sharp mid-cycle corrections suggests that it is unwilling to let the currency fall further.

China's outlook may improve in the near term after a two-week COVID blockade in the megacity of Chengdu was lifted. However, the economy still has a long way to go to reach its pre-COVID highs.

Major Asian currencies fell on Monday, while the dollar index and futures rose slightly.

The South Korean won fell 0.4 percent, while the Malaysian ringgit was the worst performer in Southeast Asia, falling 0.3 percent. The Japanese yen fell 0.2 percent, although a holiday in the country limited trading volumes.

The Fed is expected to raise interest rates by 75 basis points on Wednesday. Traders are also eyeing the possibility of a 100 basis point hike, following last week's higher-than-expected U.S. inflation data.

The New Zealand dollar fell 0.5 percent to its lowest level in more than two years in the Asia-Pacific region. Reserve Bank Governor Adrian Orr said the bank is considering including climate change risks in its monetary policy managemen