Investors fear Evergrande will keep pressure on Chinese yuan in offshore trading

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China’s offshore currency continued to weaken against the dollar on Monday amid a global stock selloff triggered by concerns about the wider impact of a potential collapse of leading real estate developer Evergrande Group 3333,
-10.24%.

The offshore USDCNH yuan,
+ 0.21%,
which trades outside the country, weakened to 6.4883 against the greenback. It has lost around 0.9% since Wednesday, mainly due to a stronger DXY dollar,
+ 0.09%.
Meanwhile, investors have flocked to other traditional havens, such as treasury bills.

Read: Why Evergrande suddenly exploded into a potential crisis in global financial markets

The Dow Jones Industrial Average DJIA,
-2.59%
slipped more than 700 points on Monday, as investors weighed the potential fallout from looming debts ahead in Evergrande. Some commentators have said it could even become a “Lehman Brothers moment” for China. Markets were closed in mainland China for a holiday, but the Hang Seng HK: HSI fell more than 3%.

See: Evergrande fears are driving stock markets down: What investors need to know about the faltering Chinese real estate giant

“China’s Evergrande is causing a lot of angst these days, but the offshore yuan’s movements are a bit more contained than one might expect,” said Brad Bechtel, global head of foreign exchange at Jefferies in New York. The offshore yuan could weaken even further to 6.50 against the dollar – a level not seen since August – if anxiety around Evergrande increases, or could strengthen to 6.40 or 6.35 if markets stabilize, he said.

“Much depends on how the Evergrande situation resolves,” he said by telephone on Monday, adding that he did not expect the People’s Bank of China to intervene in foreign exchange markets. “I don’t expect this to be a global financial crisis, but there are still pockets of weakness in equities.”


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