HONG KONG: China’s yuan eased to a one-week low on Thursday in thin trading after disappointing economic data this week and a lack of concrete measures to shore up the economy weighed on the currency.
While the yuan firmed slightly in early deals, it reversed quickly to trade lower by midday.
The sluggishness in the yuan comes a day after the currency regulator, the State Administration of Foreign Exchange (SAFE), issued a comprehensive statement to Reuters, saying exchange rate expectations were stable and it will push for a “risk-neutral” mentality at companies and financial institutions.
Reuters reported on Tuesday that China’s currency regulators had asked commercial banks to reduce or postpone their purchases of dollars in a bid to slow the yuan’s depreciation.
The yuan is down nearly 4% against the dollar this year, despite a spate of measures from the regulators to curtail speculative trading.
The stock market too has struggled as investors wait for concrete evidence of more policy support for the troubled property sector, which accounts for about a quarter of China’s economy.
China’s yuan eases as factory activity data shows first decline since April
A contraction in the purchasing managers’ index released this week underlined renewed urgency for more easing for the sector.
China will keep property financing stable and orderly, the central bank said during its second-half working conference with the foreign exchange regulator on Tuesday, adding it would continue to guide the reduction of personal housing loan interest rates and downpayment ratios.
“The market is not sensing major improvement on the housing property sector. The deterioration in house prices needs to be arrested before people regain their confidence to start spending again,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.
The People’s Bank of China set the midpoint rate, around which the spot yuan is allowed to trade, at 7.1368 per US dollar prior to market open, weaker than the previous fix 7.1283 but close to 300 pips stronger than the market consensus.
The spot yuan opened at 7.1698 per dollar and fell as low as 7.1877, 0.11% weaker than the previous close.
The dollar index fell to 102.244 from the previous close of 102.303.
Rating agency Fitch downgraded the US government credit rating to AA+ from AAA on Tuesday, becoming the second major rating agency after Standard & Poor’s to strip the United States of its triple-A rating.
“We believe the impact may end up being limited given the US position as the world’s largest and most influential economy,” Maybank analysts said in a note.
The offshore yuan was trading at 7.1919 per dollar.
The one-year forward value for the offshore yuan traded at 6.9719 per dollar, indicating roughly 3.16% appreciation within 12 months.
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