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Markets

Beijing's jawboning sets yuan on track for biggest weekly loss in four months

  • Analysts say the yuan could face some headwinds in the near term as attempts to rein in the recent rally bite, and as China's uneven recovery continues.
04 Jun 2021

SHANGHAI: China's yuan barely moved against the dollar on Friday but was set for its biggest weekly loss in at least four months following a string of official warnings against one-way bets on yuan appreciation.

A robust US dollar also weighed on the local currency after stronger-than-expected US jobs data reinforced investor expectations that the world's largest economy is recovering at a healthy clip.

"There are some signs of a dollar rebound, and if the dollar index bounces then the dollar/CNY will follow," said a trader at a foreign bank. "Yuan bulls and bears have both taken a beating, but we'll see who dares not listen to the PBOC."

Analysts and traders said a clearer direction for the dollar index and the yuan will likely come after the US nonfarm payrolls report for May, due on Friday, which could set the tone at the Federal Reserve meeting this month.

The yuan has weakened more than 0.5% versus the dollar this week, on course for its biggest weekly loss since at least early February, as Beijing has mounted a coordinated effort to talk down expectations of a stronger yuan. A flurry of official statements have warned against bets on one-sided moves in the currency.

Regulators have also taken steps to stem the yuan's rise.

The People's Bank of China (PBOC) employed a little-used measure to direct financial institutions to hold more foreign exchange in reserve, and the State Administration of Foreign Exchange granted fresh outbound investment quotas in what was seen as a signal of the many tools available to curb rapid appreciation.

On Friday, the PBOC set the midpoint of the yuan's daily trading band at 6.4072, its weakest since May 26 and softer than expected.

Spot yuan opened at 6.4060 per dollar and wavered between small gains and losses on the day. By midday, it was changing hands at 6.4035, just 5 pips stronger than Thursday's late session close.

The offshore yuan was almost steady at 6.4002 per dollar, from a close of 6.4000 on Thursday. The global dollar index rose to 90.567 from the previous close of 90.479.

Analysts say the yuan could face some headwinds in the near term as attempts to rein in the recent rally bite, and as China's uneven recovery continues.

"CNYUSD started to depreciate marginally in response to (China's) measures at the start of this week ... As well, concerns are rising again over macro recovery strength given the flat May Manufacturing PMI, particularly the weak new export orders reading," analysts at Morgan Stanley said in a note.

Bullish bets on the yuan nevertheless remain high amid strong foreign demand for yuan-denominated assets.

Russia on Thursday said it would ditch all US dollar assets in its National Wealth Fund (NWF) and increase holdings in euros, Chinese yuan and gold.

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