SHANGHAI: China’s yuan slipped to a two-month low against the dollar on Thursday, as disappointing April inflation data and news the nation’s big four state banks had been told to lower deposit rate ceilings dragged on sentiment.
China’s consumer prices rose at the slowest pace in more than two years in April, while factory gate deflation deepened, suggesting more stimulus may be needed to boost a patchy post-COVID economic recovery.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate at 6.9101 per U.S. dollar, 198 pips firmer than the previous fix 6.9299.
Spot yuan opened at 6.9300 per dollar and was changing hands at 6.9348 at midday, 60 pips weaker than the previous late session close. It earlier slipped to 6.9413, the lowest since March 10.
China’s consumer price and producer price data reinforced the weakness in domestic demand highlighted in a string of other economic indicators, said Citi analysts.
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“Yuan could continue to underperform, especially on a trade-weighted basis, with a move towards the 98-figure by the China Foreign Exchange Trade System (CFETS) RMB index only a matter of time,” said Maybank in a note.
Further weakening the yuan is the news that China had told its “big four” state-owned banks to reduce the ceiling on interest rates they pay on some deposits.
UBS analysts said on Thursday that China government bond yields fell across the curve, extending declines following the deposit-rate news, adding that yields may have more downside risks.
By midday, the global dollar index rose to 101.485 from the previous close of 101.477.
The offshore yuan was trading 84 pips away from the onshore spot at 6.9432 per dollar.
The one-year forward value for the offshore yuan traded at 6.7718 per dollar, indicating a roughly 2.53% appreciation within 12 months.
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