China’s yuan slips despite state boosting bank stakes, weak dollar

SHANGHAI: China’s yuan weakened against the dollar on Thursday, even as state investor Huijin increased stakes in “Big Four” banks to lift market sentiment, and the greenback remained subdued amid more dovish signals from the Federal Reserve.

But some traders expect the yuan to get support from more stimulus from Beijing that will ease worries over the economy.

The spot yuan opened stronger at 7.2957 per dollar, but was changing hands at around 7.30 at midday, slightly weaker than the previous late session close.

Yuan flat despite dollar weakness

Prior to the market open, the People’s Bank of China set the midpoint at 7.1776 per dollar, 1,156 pips stronger than Reuters’ estimate, reflecting authorities’ desire to prop up the currency.

The yuan market had muted reaction to news that state investor Central Huijin Investment Ltd increased holdings in China’s “Big Four” banks in an apparent move to lift market confidence.

“We look for further hints on China’s stimulus plans, which could broadly boost the yuan and other Asian currencies,” Maybank said in a note. “Thus far, China’s recovery which we expected earlier in the year has flattered to deceive.”

The yuan was not helped by a weak greenback, as the dollar index fell to two-week lows.

Minutes of the Fed’s Sept. 19-20 meeting showed policymakers wrestling with risks they agreed were no longer just about inflation, but slowing global growth, labor strikes and tightening financial markets.

The recent sharp increase in US Treasury yields, and the war in Israel, “could further increase the two-sided risks referred to in the minutes,” Maybank said.

“The implication is that the USD could now be more vulnerable to bearish forces, especially as USD bulls have looked increasingly fatigued in recent times.”

A trader at a foreign bank in China said though, that “the yuan could rebound as Beijing will likely step up policy support to the economy”.

“Market consensus may have underestimated China’s Q3 GDP after overestimating Q2 GDP,” wrote Shuang Ding, Standard Chartered Bank’s chief economist for Greater China and North Asia.

The consensus forecast is currently 4.5% year-on-year for China’s Q3 growth, but “we think an outcome of around 5% is more likely,” Ding said.