Yuan rebounds from week low as investors unwind dollar bets

SHANGHAI: China's yuan bounced on Monday from its lowest in more than a week against the dollar, as some investors took profit from their long dollar positions after strong US jobs data.

The dollar climbed against major peers, as a jump in US payrolls prompted traders to position for an earlier tapering of Federal Reserve stimulus.

Strength in the greenback dragged the central bank's daily yuan guidance rate lower. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4840 per dollar, 215 pips weaker than the previous fix of 6.4625, the weakest since July 29.

Yuan advances to 1 week high on capital inflows, basket index highest since 2016

In the spot market, onshore yuan opened at 6.4830 per dollar and was changing hands at 6.4769 at midday, 76 pips firmer than the previous late session close.

It touched a low of 6.4880 on Friday, the weakest level since July 29.

Marco Sun, chief financial markets analyst at MUFG Bank in Shanghai, sees the dollar index trading narrowly after US non-farm payrolls as the market was still unclear when the Federal Reserve would announce tapering of pandemic stimulus.

Sun maintained his forecast for the yuan to trade in a range of 6.45 to 6.49 per dollar for the near time, with some upside risks to the Chinese currency.

Several currency traders attributed the bounce in the yuan on Monday morning to profit-taking orders on dollars from some corporate clients and banks' proprietary accounts.

Meanwhile, the market's focus was starting to switch to Fed officials' comments at the annual Jackson Hole policy symposium later this month and Beijing's signals on policy after recent data pointed to an economic slowdown in China. Some analysts believe a Fed tapering could restrain China's monetary easing.

Although markets have not reached a consensus on the yuan's outlook, Fed tapering could boost the dollar and pile pressure on the yuan. Monetary easing in China may add more downside risks and trigger capital outflows, a trader at a Chinese bank said.

China's factory gate inflation in July rose at a faster clip from the previous month and exceeded market expectations, data showed, but export growth unexpectedly slowed last month following outbreaks of COVID-19 cases.

"Taking the virus spread in China into account and softening overseas exports demand, China growth momentum is subjected to downside bias and the PBOC-Fed monetary policy divergence will probably pressure the RMB exchange rate, in our view," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

By midday, the global dollar index stood at 92.8, while the offshore yuan was trading at 6.4757 per dollar.