SHANGHAI: China’s yuan slipped against the dollar on Wednesday, pulling back after notching its biggest daily gain since October a day earlier, as data showed continued capital outflows from Chinese bonds in April.
Foreign investors cut their holdings of onshore yuan bonds for the third consecutive month in April, the data showed, the longest such stretch on record.
The figures supported data from the International Institute of Finance (IIF) last week showing the largest quarterly capital outflows on record for China in the first quarter.
With the dollar for the moment halting its march higher after touching a 20-year peak late last week, traders said the yuan could see broad swings in the near term, though expectations of rate hikes by the US Federal Reserve would continue to support the US currency.
“In the near term the dollar index may continue to correct, but for the yuan there’s a sense that it could move both up and down,” said a trader.
Federal Reserve Chair Jerome Powell on Tuesday added to concerns that the US central bank might take a more hawkish approach to bringing surging prices under control, vowing to raise rates as high as needed to kill inflation.
Meanwhile, offering a small boost of hope for the Chinese economy, China’s financial hub of Shanghai on Wednesday reported its fourth straight day of zero community spread of COVID-19, though huge pressure remains to keep the virus at bay.
And in Beijing’s latest move to provide a fillip to struggling companies, Chinese Vice-Premier Liu He told tech executives on Tuesday that the government supports the development of the sector and tech firm public listings.
Early on Wednesday, the People’s Bank of China (PBOC) set the yuan’s daily midpoint at 6.7421 per dollar, more than 400 pips firmer than the previous day’s fixing.
Onshore spot yuan opened at 6.7370 per dollar and slipped to 6.7505 by midday, 129 pips weaker than Tuesday’s late session close. The currency had leapt nearly 500 pips on Tuesday as it recorded its biggest daily gain since Oct. 19.
The offshore yuan also weakened, softening to 6.7648 from a close of 6.7413.
FX analysts at Maybank said a narrowing spread between the onshore and offshore yuan suggested further downward pressure on the yuan was easing, possibly due to the broader dollar decline and easing COVID lockdowns.
Liu’s comments and other recent economic support measures, including mortgage rate cuts, had also likely boosted sentiment, they said.
“That said, newly released new home prices for April likely reminded market players that China is not at all out of the woods.”
Prices of new homes in China fell for the first time month-on-month since December in April, hit by weak demand in small cities and widespread lockdowns.