HONG KONG: China's yuan slipped against the dollar on Wednesday after the central bank set a weaker midpoint to reflect an overnight rebound in the global dollar index.
Traders expected the Chinese currency to remain range-bound until the world's second-largest economy sees a material recovery and seasonal demand for dollars gradually fades after June.
Spot yuan changed hands at 6.2340 per dollar near midday, down 0.04 percent from Tuesday's close at 6.2315. The People's Bank of China (PBOC) fixed the yuan midpoint at 6.1555, down 0.02 percent from the previous day's 6.1545.
"China is not out of the woods yet ... a continued downturn in the real estate sector remains a drag on the economy and a downside risk for achieving the government's development targets," said Dariusz Kowalczyk, a strategist at Credit Agricole.
Activity in China's factory sector expanded in June for the first time in six months as new orders surged, a preliminary HSBC survey showed on Monday, offering new signs the economy is stabilising thanks to Beijing's stimulus measures.
However, analysts said there is roughly a five-month delay between this leading indicator and China's economy, which means improvement shown in the PMI will only impact the activity later this year.
Meanwhile, seasonal demand for dollars from Chinese state-owned companies is usually strong in June as they need to pay dividends to their overseas shareholders.
The yuan and offshore yuan have returned to their trading range of 6.22-6.27 and will stay in this area for the time being, Kowalczyk said.
"We expect a decisive recovery only after the economy rebounds in H2," he added.
The yuan staged its best weekly performance in more than two years with a total gain of 0.6 percent earlier this month, after a sharp fall engineered by the central bank to squeeze out speculative money in February.
The currency has lost 2.9 percent against the dollar so far this year, becoming one the worst players among its emerging market peers.
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