Yuan edges down after weak factory activity, awaits more cues

SHANGHAI: China's yuan softened against the US dollar on Wednesday, after signs of slowdown in factory activity and on expectations of more downward pressure on the Chinese currency.

The yuan opened at 6.4620 per dollar and was changing hands at 6.4623 at midday, 19 pips weaker from the previous late session close.

The People's Bank of China set the midpoint rate at 6.480 per dollar prior to market open, not far from the previous fix of 6.4679.

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

"The yuan is fluctuating within a narrow range. The central bank appears to be quite happy where it is now," said a trader at a state lender.

"The market is waiting for catalysts. Over the long term, the yuan will likely weaken."

Data on Wednesday showed China's factory activity slipped into contraction in August for the first time in nearly 1-1/2 years as COVID-19 measures and supply bottlenecks dragged on output.

China cut banks' reserve requirement ratio (RRR) in July to bolster a slowing economy, while the US Federal Reserve is heading towards tapering.

"The PBOC's policy shift is expected to continue with more selective liquidity easing. That should mitigate the downside growth risk in China," wrote Chi Lo, senior economist at BNP Paribas Asset Management, adding the Fed is moving in the opposite direction.

But uncertainty remains around when the United States will start to exit its pandemic-era stimulus.

US consumer confidence slipped to a six-month low of 113.8 in August, and consumers are also worried about Delta-variant infection cases and higher inflation, DBS Group wrote in a note.

In addition, worries over supply shortages would further dampen the US growth outlook in the third quarter, it said.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.72, firmer than the previous day's 98.64.

The global dollar index rose to 92.775 from the previous close of 92.662.

The offshore yuan was trading 0.06 percent away from the onshore spot at 6.4582 per dollar.