China's yuan faces a cocktail of bearish headwinds even as Beijing scrambles to prop up the currency

Wall Street sees further downside ahead for China's already weakening currency, with JPMorgan strategists outlining a "fundamental" bear case.

• China's currency has more downside ahead, according to JPMorgan strategists.
• Beijing has attempted to prop up the weakening yuan, but the bank sees reason to stay bearish. 
• "The fundamental case for additional yuan weakness remains very much intact."

The Chinese yuan has weakened over recent months as the world's second largest economy faces a wobbling property sector, slow growth, declining trade and lower foreign investment.

Despite Beijing's attempts to prop up the currency, Wall Street isn't optimistic.

The offshore yuan hovered near an all-time low at 7.31 against the dollar on Tuesday. Earlier this year, it had traded as strong as 6.70 during a stretch when prospects of a post-pandemic rebound were still high.

The People's Bank of China has tried to support the currency by setting aggressive daily reference rates. Meanwhile, Reuters said China asked state-run banks to intervene in currency markets to boost the yuan, and Bloomberg reported that authorities have also pushed up funding costs to make it more expensive to bet against the yuan.

But the "fundamental bear case for additional yuan weakness remains very much intact," JPMorgan strategists led by Meera Chandan said Friday.

According to a note, rising global yields, higher oil prices, a strong dollar, and recent weakness in financial markets all put downward pressure on the yuan — not to mention several months of investors reducing exposure to Chinese assets. 

Domestically, a slowdown in land sales and new home starts are further dragging on the the already-downbeat housing market, and JPMorgan expects more pain to come for the property sector. 

And the central bank's larger-than-expected rate cuts gave markets reason to expect further currency weakness amid attempts to revive the broader economy, according to JPMorgan.

"[Yuan] weakness has more legs to it on policy and growth divergences," the strategists wrote. 

Recent strong fixing biases and any further moves, in the bank's view, likely won't be enough to deter short bets against the currency. 

To be sure, the JPMorgan said China's large foreign currency reserves and onshore dollar holdings give policymakers the ability to curb yuan weakness in the near-term.

But they may not be willing to intervene "on a durable basis at a time when the currency is depreciating at a still relatively orderly pace," according to the note.