Yuan slips on signs of China slowdown, set for 3rd month of decline

SHANGHAI: China's yuan slipped against the dollar on Tuesday and looked set for a third straight month of decline, on fresh signs of economic slowdown in the world's second-largest economy.

China's factory activity expanded at a slower pace in August while the services sector contracted, according to official purchasing manager surveys, raising the likelihood of more near-term policy support to boost growth.

"Despite stronger headwinds of weaker growth and mounting regulation risk, the RMB held steady at the 6.46/6.47 area as RMB expectations remain well anchored by the People's Bank of China's (PBOC) FX policy guidance," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

Cheung pointed to largely steady official guidance from the central bank prior to market opening. On Tuesday, the PBOC set the midpoint rate at 6.4679 per dollar, 2 pips weaker than the previous fix of 6.4677.

In the spot market, onshore yuan opened at 6.4680 per dollar and was changing hands at 6.4678 at midday, 7 pips weaker than the previous late session close, and on course for a third month of loss.

Several traders said the market was still wary of the pace and timing of Federal Reserve tapering, with many investors shifting their attention to US jobs data due later this week for more clues.

The Fed's withdrawal of huge pandemic-era stimulus could bring volatility to the dollar and major currencies.

Sources told Reuters that China's currency regulator has surveyed banks and companies to ask about their risk management processes and ability to handle volatility in the yuan.

By midday, the global dollar index fell to 92.567 from the previous close of 92.706, while offshore yuan was trading at 6.4651 per dollar.