China’s yuan hits two-week low as risk sentiment sours

SHANGHAI: China’s yuan eased to a two-week low against the US dollar on Wednesday, pressured by a broad global risk-off mood that lifted the greenback and weighed on Chinese equities.

Mainland China and Hong Kong stocks fell on Wednesday, tracking regional losses, after an overnight tech-led selloff on Wall Street reignited concerns over stretched valuations.

Spot yuan opened at 7.1330 per dollar and quickly hit 7.1344, the weakest level since Oct 14, before reversing some losses to stand little changed by mid-morning.

China’s services activity expanded in October but at its slowest pace in three months, as a decline in overseas orders offset the boost from improved domestic demand, a private survey released on Wednesday showed.

“Some of this weakness may reverse in the near-term, but any boost to exports from the latest US-China trade deal is likely to be modest and wider headwinds to growth will persist,” said Zichun Huang, China economist at Capital Economics.

As of 0227 GMT, the spot yuan was last trading at 7.1291 per dollar, 9 pips firmer than the previous late session close and 0.55% weaker than the midpoint.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.0901 per dollar, 435 pips firmer than a Reuters’ estimate. The spot yuan is allowed to trade a maximum of 2% either side of the fixed midpoint each day.

The US dollar index, which measures the currency against six major currencies, was steady at 100.13, hovering near its strongest level since August 1.

The dollar rebound was supported by a mix of short-term drivers including Federal Reserve Chair Jerome Powell’s resistance to a December rate cut and safe-haven demand as the US government shutdown stretches into its second month, DBS analysts said in a note.

The analysts said the greenback’s strength appears more like a short squeeze than the start of a sustained rally.

The offshore yuan traded at 7.1338 yuan per dollar, up about 0.02% in Asian trade.

China is due to release trade data on Friday and inflation figures on Sunday.

Credit lending and activity indicators are scheduled for next week.

The PBOC resumed bond purchase in October for the first time in 10 months, the bank said on Tuesday.