Yuan largely flat, tighter cash conditions offset disappointing economic data

SHANGHAI: China's yuan traded largely flat against the dollar on Monday, as support from a firmer official currency guidance rate and tighter cash conditions in interbank markets made up for weakness from disappointing economic activity indicators.

Traders said investors continued to look for clues on where to put their money from major central banks' stances on currency policy outlooks.

They said China's central bank has not yet shown a clear attitude following recent data and liquidity operations, while markets would switch attention to the US Federal Reserve's latest minutes - due on Wednesday - as the hunt for pointers switches to the Fed's thinking.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4307 per dollar, 218 pips or 0.34% firmer than the previous fix of 6.4525.

In the spot market, onshore yuan opened at 6.4420 per dollar and was changing hands at 6.4383 at midday, 8 pips weaker than the previous late session close.

Traders said activity indicators continued to reflect an unbalanced economic recovery, piling pressure on the yuan as fundamentals of the economy remain the key factor influencing the currency.

China's factory output growth slowed in April from the jump seen in the previous month, while retail sales missed analyst expectations, indicating more pressure on the recovery in consumption.

"Continued weak domestic demand momentum would create a dilemma for policymakers, as it will lead to pressure to pursue a more pro-growth macro policy that could increase financial risks and leverage," Louis Kuijs, head of Asia economics at Oxford Economics, said in note.

Meanwhile, the weakness was offset by signs of liquidity tension in the money markets ahead of the monthly tax payment due later this week.

The volume-weighted average rate of the benchmark overnight repo traded in the interbank market, rose to 2.13% in morning trade, the highest level since April 30.

Separately, the PBOC injected 100 billion yuan ($15.54 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions, rolling over the same amount of maturing loans while keeping interest rate unchanged for the 13th straight month.

By midday, the global dollar index rose to 90.4 from the previous close of 90.295, while the offshore yuan was trading at 6.4415 per dollar.