China’s yuan looks set for third weekly loss, US job data awaited

SHANGHAI: China’s yuan looked set for the third straight weekly loss against the dollar on Friday as investors anxiously awaited US labour data that could cement another aggressive interest rate in the world’s largest economy in September.

The Chinese currency fell around 2% in August but declines have slowed somewhat after the People’s Bank of China (PBOC) persistently set firmer-than-expected midpoint fixings over the past week, prompting some market speculation that it was looking to prop up the currency.

Prior to the market opening, the PBOC set the midpoint rate at 6.8917 per dollar, 96 pips weaker than the previous fix of 6.8821, but 285 pips stronger than Reuters’ estimate of 6.9202.

The stronger-than-expected fixing lifted the spot market.

The onshore yuan opened at 6.9000 per dollar and was changing hands at 6.9020 at midday, 46 pips firmer than the previous late session close.

If the yuan finishes the late night session at the midday level, it would have lost 0.4% to the dollar for the week, booking its third consecutive weekly drop.

Friday marks the eight straight day that the central bank set a firmer-than-expected midpoint rate, which limits the onshore yuan to swing in a narrow band of 2% above or below.

“If the greenback were to get a fresh leg up once again, we would expect the PBOC to revert to familiar tools that would limit yuan weakness,” said Eugenia Victorino, head of Asia strategy at SEB.

China’s yuan extends weakness, but persistently firmer fixing checks losses

Victorino added that an uncontrolled yuan depreciation is unlikely ahead of the politically significant Party Congress in October, while seeing a risk of the yuan breaching the key 7 per dollar level.

In global markets, the dollar was headed for its third weekly gain in a row , with investors in little mood for selling ahead of US labour data due at 1230 GMT and economists expect 300,000 jobs were added in August, which would extend a strong run of data.

Several traders said the market refrained from testing new lows in the yuan as investors were wary of the recent firmer-than-expected midpoint rates.

“But given the dollar rally and strong expectations of more hawkish Fed rate hikes, I think (the recent stronger fixings) were intended to control the pace of yuan depreciation instead of reversing the trend,” said a trader at a Chinese bank.

By midday, the global dollar index stood at 109.543, while the offshore yuan was trading at 6.9065 per dollar.