China’s yuan eases, set for losing week on seasonal dollar demand

SHANGHAI: China’s yuan eased against the dollar on Friday and looked set for a losing week, as heavier seasonal corporate demand for the greenback offset fears of a US recession and hopes for domestic economic recovery.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.6863 per dollar, 251 pips or 0.38% firmer than the previous fix 6.7114.

In the spot market, onshore yuan opened at 6.6954 per dollar and was changing hands at 6.7045 at midday, 44 pips weaker than the previous late session close.

If the yuan retains all the losses by the late night close, it would have lost 0.22% to the dollar for the week.

Analysts and traders said the yuan weakness was largely driven by their corporate clients’ dollar demand as many of the overseas-listed Chinese companies have to make dividend payouts to their foreign shareholders between June and August each year.

Marco Sun, chief financial market analyst at MUFG Bank, said such FX demand from corporate clients was at its peak, as “companies usually picked the timing to purchase large amounts of foreign exchange.”

But losses in the yuan on Friday were limited as both official and private surveys showed that China’s manufacturing activity expanded in June, as the lifting of COVID lockdowns sent factories racing to meet recovering demand.

“The RMB has stabilised over the past few weeks as ‘lockdown’ measures have eased and the central government is sounding more determined to spur a growth recovery,” analysts at HSBC said in a note.

“The next event risk for the RMB will probably arise from the US’s ongoing review of its Section 301 tariffs. A material rollback of tariffs may push USD/RMB lower.”

The cabinet was quoted by state media as saying on Thursday that China would issue 300 billion yuan in financial bonds to replenish capital of key projects, or provide bridge financing for projects funded by special bonds.

Separately, market participants will pay close attention to US ISM manufacturing data due later in the session to gauge the health of the world’s largest economy, which could affect the pace of US monetary tightening and global currency markets.

By midday, the global dollar index rose to 104.931 from the previous close of 104.685, while the offshore yuan was trading 6.7135 per dollar.