SHANGHAI: China’s yuan weakened on Wednesday after a private survey showed services activity expanded at the slowest pace in five months in June, while speculation about government bond supply also kept a lid on yields.
The Caixin/S&P Global services purchasing managers’ index (PMI) expanded at the slowest pace in five months in June as demand for in-person services weakened.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate at 7.1968 per US dollar, 78 pips firmer than the previous fix 7.2046.
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The spot yuan opened at 7.2120 per dollar and was changing hands at 7.2320 at midday, 150 pips weaker than the previous late session close.
The offshore and onshore yuan fell back to 7.24 and 7.23 level against the dollar, respectively, as the Caixin China PMI Services grew less than expected, said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
Rate differentials aside, China’s disappointing recovery and US-China tensions would be keeping pressure on the yuan, said Philip Wee, senior FX strategist at DBS.
Meanwhile, bond yields and the interest rate swap curve edged lower after news that a think tank said China should ramp up government bond supply, UBS analysts wrote in a note.
“China rates are under downward pressure, as Tuesday’s futures led selloff driven by fresh chatter of special bond issuance is unwound,” said Citi analysts, adding the teams at Citi remain cautious as they wait for more pro-growth measures.
By midday, the global dollar index rose to 103.125 from the previous close of 103.039.
The one-year forward value for the offshore yuan traded at 7.0229 per dollar, indicating a roughly 3.11% appreciation within 12 months.
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