China's yuan dips as Biden infrastructure plan lifts dollar

SHANGHAI: China's yuan weakened on Thursday as bets that fiscal stimulus and an aggressive vaccine schedule in the United States would lead to faster growth kept the dollar near a five-month high, and as a survey showed slower growth at China's factories.

The weaker yuan came even after the People's Bank of China broke a six-day streak of weaker daily fixings for the currency's midpoint, setting it at 6.5584 per dollar from the previous fix of 6.5713.

Spot yuan opened at 6.5550 per dollar and softened to 6.5681 by midday, 163 pips weaker than Wednesday's late session close.

The offshore yuan dipped to 6.5779 per dollar from a close of 6.5640.

"With the pandemic raising its head again in Europe and the dollar's momentum looking good, the yuan still faces pressure," said a trader at a Chinese bank.

Traders said the yuan's downside was likely limited in the near term by corporate demand for dollar sales, but said a strong rise in the dollar index - possibly around closely watched US non-farm payroll data due Friday - could affect market expectations.

The yuan logged its worst month since August 2019 in March, as expectations of a quick US economic recovery and rising Treasury yields have buoyed the dollar.

US President Joe Biden on Wednesday set the stage for further spending to boost the world's largest economy, with a $2 trillion proposal to create millions of jobs around infrastructure, tackling climate change and boosting human services such as care for the elderly.

A Reuters poll of foreign exchange strategists showed expectations that faster growth and higher yields will continue to lift the greenback for at least another month, though it also indicated the dollar is seen weakening over the next 12 months.

The global dollar index was at 93.231 on Thursday after touching a five-month high of 93.439 a day earlier.

"We maintain our USD-CNY forecast of 6.3 for end-H1-2021, and expect a reversal to 6.45 by year-end. The CNY is likely to remain supported by China's solid economic recovery and increasing capital inflows," said Qi Gao, Asia FX Strategist at Scotiabank.

But while underlying economic conditions in China remain positive, a private survey showed China's factory activity expanded at the slowest pace in almost a year in March on softer overall domestic demand.