China’s yuan eases as US jobs report seen keeping Fed hawkish

SHANGHAI/SINGAPORE: China’s yuan eased on Monday, reflecting broad dollar strength in global markets as a robust US jobs report spurred bets of further rate hikes in the world’s largest economy.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.0904 per dollar, 35 pips firmer than the previous fix of 7.0939.

The official guidance fixing has been in line with market projections over the past few weeks. And Monday’s fixing was 14 pips firmer than Reuters’ estimate of 7.0918.

“The absence of any explicit push back from policymakers is fuelling confidence in driving the pair (dollar/yuan) higher,” said Christopher Wong, FX strategist at OCBC Bank.

“Daily RMB fix continues to come in consistent with consensus expectations and that somewhat gave the impression that policymakers may be walking the talk in allowing markets to play a greater role in price discovery.”

The yuan has skidded to six-month lows against the dollar and analysts say it could weaken further as investors fret over the uneven recovery from the COVID-19 pandemic in the world’s second-largest economy.

Market projections of more tightening by the US Federal Reserve after an expected pause in June, also adds to pressure on the Chinese currency.

China’s yuan eases to 6-month low on disappointing manufacturing data

In the spot market, the onshore yuan opened at 7.1050 per dollar and was changing hands at 7.1018 at midday, 58 pips weaker than the previous late session close.

Traders said the yuan should continue to face some downside pressure due largely to rising seasonal demand for dollars as overseas-listed Chinese companies prepare to make dividend payments to their shareholders. Such demand usually takes place between May and July.

“Markets look to remain on the edge with a deluge of important data out this week that would give us more cues on the state of China’s economy,” Maybank analysts said in a note.

“For now though, the central bank is probably allowing market forces to drive the yuan as long as price action is in line with broader market action.”

China is due to publish May inflation and trade data this week, allowing investors to gauge the pace of economic recovery after official factory activity shrunk more than expected last month.

By midday, the global dollar index stood at 104.124, while the offshore yuan was trading at 7.114 per dollar.