China’s yuan falls to a 3-week low as July trade data disappoints

HONG KONG: China’s yuan weakened on Tuesday against the US dollar to a three-week low, after disappointing trade data for July showed outbound shipments from the world’s second-largest economy dropped at the fastest rate in more than three years.

China’s exports fell 14.5% in July year-on-year, while imports contracted 12.4%, customs data showed on Tuesday, in the biggest percentage decline in exports since February 2020.

A Reuters poll of economists had forecast a 12.5% fall in exports and a 5.0% drop in imports.

China’s economy grew at a sluggish pace in the second quarter as both domestic and external demand weakened, prompting top policymakers to promise further policy support at a Politburo meeting last month.

However, proposals such as stimulating consumption in automobiles and the services sectors have disappointed investors thus far, as they do not think these measures are far-reaching enough to help consumers regain confidence to start spending again.

Additionally “there is a limit on how much authorities could do to improve a deterioration in external demand,” said Kiyong Seong, lead Asia macro strategist at Societe Generale.

The People’s Bank of China (PBoC) set the midpoint rate , around which the yuan is allowed to trade within a 2% band, at 7.1565 per US dollar prior to market open, weaker than the previous fix of 7.1365 but about 300 pips stronger than the market consensus.

China’s yuan hovers at 2-week low, market expects more monetary easing

The spot yuan opened at 7.2004 per dollar and was changing hands at 7.2096 at midday, 154 pips weaker than the previous late session close and 0.74% weaker than the midpoint.

“The fixing, at above the 7.15-figure suggests that the PBoC could be allowing the onshore and concomitantly, offshore to drift weaker,” Maybank analysts said in a research note on Tuesday.

The dollar index rose to 102.308 from the previous close of 102.047.

The offshore yuan was trading 0.18% weaker than the onshore spot at 7.2223 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 7.0005, 2.23% away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.