HONG KONG: The yuan fell to a one-week low against the dollar on Tuesday after a private survey showed China’s services activity expanded at the slowest pace in eight months in August, suggesting recent stimulus measures have done little to revive sluggish demand so far.
The Caixin/S&P Global services purchasing managers’ index (PMI) dropped to 51.8 in August from 54.1 in July. The reading was broadly aligned with the fall in the official non-manufacturing PMI released last week, which edged down in August from July.
The disappointing data also came amid a slew of measures aimed at shoring up the debt-ridden property sector, which accounted for a quarter of the country’s economy, as the sector’s drawn-out crisis has eroded investors’ confidence.
“Sentiment in the property sector may have improved but this has not been captured in the August PMI. Fundmentally, foreign investors have not changed their pessimistic outlook on China’s economy,” said Kiyong Seong, lead Asia macro strategist at Societe Generale.
FundamentallyPeople’s Bank of China set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1783 per US dollar prior to the market open, firmer than the previous fix of 7.1786.
The level was a three-week high and over 900 pips stronger than market projections.
The spot yuan opened at 7.2760 per dollar and at one point fell to 7.2947 in early trade after the PMI release.
It was changing hands at 7.2912 at midday, 157 pips weaker than the previous late session close and 1.57% away weaker than the midpoint.
The dollar index fell to 104.234 from the previous close of 104.236.
The offshore yuan was trading at 7.2914 per dollar, nearly flat as its onshore counterpart.
Investors will be eyeing more economic indicators this week, with August import and export data slated for Thursday, and the inflation report for last month on Saturday.
“The yuan could get a greater boost if there are any signs of stabilization in the property sector and (economic) growth,” said Maybank analysts in a research note.
DBS said in a research note this week that it expects China’s full year 2023 gross domestic product (GDP) growth to “come in at 5% or lower”. Beijing has set a modest target of around 5% GDP for the year.
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 7.091, 1.23% away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
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