SHANGHAI: China’s yuan on Monday extended losses against the dollar after posting its fifth straight month of declines in May, weighed down by seasonal demand for foreign exchange.
Overseas-listed Chinese companies usually have to make foreign exchange purchases, which require selling yuan, to fulfill dividend payouts to their offshore shareholders between May and August.
Market participants were also looking ahead to US economic data, including the ISM manufacturing survey due later in the session and nonfarm payrolls on Friday as well as a rate decision by the European Central Bank (ECB) on Thursday which could provide more trading direction.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at a near two-week high of 7.1086 per dollar, firmer than the previous fix of 7.1088.
But the central bank continued its months-long trend of setting the official guidance rate at levels firmer than market projections, traders and analysts said, a move widely seen by markets as an attempt to keep the yuan stable.
Monday’s official midpoint was 1,292 pips stronger than a Reuters’ estimate of 7.2378 per dollar.
In the spot market, the onshore yuan opened at 7.2409 per dollar and was changing hands at 7.2456 at midday, 31 pips softer than the previous late session close.
China’s yuan slips on weak PMI
The currency has lost more than 2% against the dollar this year, pressured by its relative low yields versus other currencies and China’s monetary policy divergence with other countries.
“For now, we continue to believe that policymakers will lean against such expectations (for a weaker yuan) and hold the line against more discontinuous shifts weaker despite the outflow pressures caused by higher US rates,” analysts at Goldman Sachs said in a note.
Separately, there appeared to be little market reaction to a private survey showing China’s manufacturing activity in May grew at the fastest pace in about two years with strong production and new orders.
By midday, the global dollar index fell to 104.587 from the previous close of 104.671, while the offshore yuan was trading at 7.2605 per dollar.
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