China's yuan has skidded to six-month lows against the dollar and analysts say it could weaken further as investors fret over a bumpy pandemic recovery in the world's second-largest economy.
Disappointing economic data, widening yield differentials with the United States, upcoming corporate dividend payments and continued capital outflows through foreign selling of stocks and bonds have combined to drag the currency down to levels last seen in November.
"A weaker currency at the current juncture can help export performance, especially as global trade is shrinking this year." "Expectations of financial institutions, enterprises and residents on the exchange rate are generally stable, which is a solid foundation and strong guarantee for the smooth operation of the foreign exchange market," the central bank said in the statement.
Tommy Wu, senior China economist at Commerzbank, also said the central bank "appears to tolerate a weaker yuan," noting its recent daily official yuan midpoint guidance rates have all came in line with market expectations. However, implied volatility for the currency , an options market gauge of future volatility, has been fairly stable. The one-month tenor stood at 4.5, the highest since April. And six-month yuan traded in forwards market was priced at 6.96 per dollar.
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