China's yuan rebounds from 13-month low, outlook bumpy

HONG KONG: China's yuan bounced from a 13-month low against the dollar on Monday as investors bet the currency's weak spell may be ending for now after the central bank set a stronger mid-point fixing.

The yuan changed hands at 6.2188 per dollar near midday, up 0.1 percent from Friday's close of 6.2250. It fell 1.2 percent last week, its biggest-ever weekly drop, according to Thomson Reuters data going back to 1992.

The People's Bank of China (PBOC) fixed the mid-point at 6.1452, up 0.04 percent from the previous day's 6.1475, breaking a four-day falling streak.

"The RMB exchange rate, which hit 1-year lows last week but stabilised on Friday, is likely to consolidate or rebound today and this week," said Dariusz Kowalczyk, a senior strategist at Credit Agricole, referring to the Chinese currency.

The PBOC is widely believed to have engineered a sudden and sharp fall in the yuan in recent weeks to punish speculators who have seen the currency as a one-way appreciation bet, after it gained some 30 percent since 2005.

The big loss of 2.8 percent so far this year has wiped out almost all its gains made in 2013, and comes as global investors grow increasing worried that China's economy is losing momentum faster-than-expected.

The yuan exchange rate will be more and more determined by the market and the People's Bank of China's (PBOC) decisive role on the exchange rate will weaken, said Yi Gang, a vice governor of the People's Bank of China on Saturday.

The non-deliverable forwards market, an venue global investors use to bet on future yuan movements, suggests the yuan will settle at 6.2100 in a year's time on Monday, gaining slightly from a low of 6.2405 seen on Thursday.

However, analysts ruled out a substantial strengthening of the yuan in the near-term, citing a series of disappointing economic indicators from China, from exports to factory activity, which are likely to cap any upside for the currency in the near term.

Activity in China's factories slowed for a fifth straight month in March, a preliminary private survey showed on Monday, raising market expectations of government stimulus to arrest a loss of momentum this year.

The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to an eight-month low of 48.1 in March from February's final reading of 48.5. The index has been below the 50 level since January, indicating a contraction in the sector this year.

"We expect the CNY to stay weak in Q2. Increased uncertainty on the CNY outlook, concerns about China's growth and financial risks, together with reduced onshore-offshore interest rate differentials, point to smaller inflows and depreciation pressures," Chang Jian, an analyst at Barclays said.