SHANGHAI: The yuan rose against the dollar on Monday, hitting its highest intraday level since early July, as signals that the People's Bank of China (PBOC) intends to keep the currency stable offset the impact of weak Chinese manufacturing data, traders said.
In addition, the spot yuan briefly traded above the PBOC's midpoint for the first time since mid-May. Previously traders said the central bank was deliberately setting the midpoint fix stronger against the dollar than the market felt comfortable with in order to signal its intentions to prevent a destabilising fall in the yuan's relative value.
Part of the reason for downward pressure on the yuan appears to have been corporate dollar hoarding, but as that trend has wound down, the yuan has stabilised and spot prices have again moved closer to the midpoint.
"With corporations having become less interested in dollars, there is now a rough balance of dollar supply and demand," said a trader at a Chinese commercial bank in Shanghai.
"Supported by the PBOC's stable midpoint in recent weeks, spot yuan should be able to stabilise in coming weeks."
Spot yuan was trading at 6.3436 per dollar at midday, up from Friday's close of 6.3484. In intraday trading, it hit a high of 6.3414, its strongest level since July 4 and above the PBOC's midpoint for the first time since May 17.
Before trading began, the PBOC fixed its daily midpoint at 6.3415, slightly stronger than Friday's 6.3449 in line with the dollar weakening in global markets on Friday but also reflecting the central bank's intention to keep the yuan relatively stable, traders said.
Strong dollar demand for much of 2012 has caused the yuan to fall this year, sinking by as much as 1.6 percent in late July when the dollar index hit a two-year high.
But the yuan has regained some ground since then, leaving the yuan down 0.8 percent for the year to date.
CONTINUED WEAK PERFORMANCE
China has consistently reported weaker-than-expected data since April, including reporting that its gross domestic product (GDP) growth dropped to a three-year low in the second quarter of this year.
The latest data published on Monday and over the weekend showed China's vast manufacturing sector has been badly hit by slowing orders, a sign that the pace of growth will weaken well into the third quarter.
The final reading of the HSBC China manufacturing purchasing managers' index (PMI) for August fell to a seasonally adjusted 47.6, its lowest level since March 2009, down from 49.3 in July and slightly below a flash reading of the index late last month.
This data issued on Monday followed China's official PMI - one of the early indicators of the state of the economy - which fell to a lower-than-expected 49.2 in August, the National Bureau of Statistics said on Saturday.
"The economy, in particular exports, continues to perform worse than expected, weakening sentiment towards the yuan," said a trader at an Asian bank in Shanghai.
"So there will be very limited room for the yuan to appreciate in the near term, even though the currency has rebounded slightly recently."
Traders expect spot yuan to move in a range of 6.33 to 6.38 percent in coming weeks in the absence of fresh market developments.
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