The Chinese yuan exchange rate is under pressure in both onshore and offshore markets. Today, on June 20th, the onshore and offshore yuan to US dollar exchange rates dropped to a new low since mid-November of last year.
Data from the China Foreign Exchange Trade System showed that on June 20th, the central parity rate of the yuan against the US dollar was set at 7.1192, depreciating by 33 basis points.
Following the release of the central parity rate, the offshore yuan to US dollar exchange rate slightly dropped on June 20th, hitting a low of 7.2874 during the trading session, marking a new low since mid-November of 2023, before regaining some lost ground.
In the onshore market, the spot exchange rate of the yuan against the US dollar opened at 7.2580 on June 20th, later falling below the 7.26 level. It dropped to as low as 7.2602 during the trading session, the lowest since mid-November of 2023.
The yuan to US dollar exchange rate has experienced increased volatility since the beginning of the year. From early 2024 to the end of April, the yuan has depreciated by around 2.1%, dropping from 7.0978 to 7.2464 against the US dollar at the end of 2023. With the market widely expecting the delay in the Federal Reserve’s interest rate cuts, further depreciation of the yuan against the US dollar is almost certain.
Meanwhile, a series of changes such as the sluggish export profit in China and shrinking overseas demand have made many Chinese exporters pessimistic about business prospects. Consequently, they choose to store assets in currencies other than the domestic currency for better preservation.
Since the US dollar deposit interest rate in Hong Kong is 2 to 3 times higher than the mainland’s yuan deposit rate, some exporters also keep their export earnings in Hong Kong.
Moreover, there is a significant interest rate difference between China and the US/Europe. The returns on euro and dollar deposits are around 5%, while the domestic yuan deposit rate is about 1.5%, weakening the willingness of Chinese exporters to regularly transfer export forex inflows into the mainland. From the perspective of exchange rate, keeping the US dollar in overseas deposits undoubtedly brings premium income.