SHANGHAI: China’s yuan eased against the dollar on Tuesday, as mixed trade data reinforced market perceptions of a fragile and uneven recovery in the world’s second largest economy.
Official data showed imports unexpectedly grew in October while exports contracted at a quicker pace, hurt by soft global demand.
The onshore yuan opened at 7.2713 per dollar and was changing hands at 7.2788 at midday, 99 pips weaker than the previous late session close.
Its offshore counterpart was largely flat and traded at 7.2848 per dollar around midday, underpinned by signs of liquidity tightness in offshore yuan market, traders said.
The overnight CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR), a gauge that measures the liquidity conditions in Asia’s financial hub, rose to 4.07788% on Tuesday, the highest since Oct. 24.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1776 per dollar, 4 pips firmer than the previous fix of 7.1780.
The official midpoint fixing continued to come in stronger than market projections, traders and analysts said, interpreting it as an official attempt to rein in excess yuan weakness.
China’s offshore yuan nears one-month high
But they pointed out that the gap between fixes and market projections had been narrowing in recent sessions.
Tuesday’s fixing was 1,078 pips stronger than Reuters estimate of 7.2854, compared with a record gap of 1,549 pips last week.
Investment sentiment towards China’s share markets remained under a cloud.
“While the Stock Connect outflow from A-shares has been moderating lately, the China property market is still not yet out of the woods and China growth outlook remains generally bearish,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
“In our view, it would be too early to declare the victory in preserving the yuan stability, and the PBOC will likely phase out its FX policy support gradually.”
Some analysts and traders said they don’t expect the central bank to loosen its tight grip on the currency before the dollar pivots.
“This week, we have a slew of macro data out of China, and we need to watch if the green shoots last,” analysts at Barclays said in a note, referring to rising household loans and China’s inventory cycles bottoming out as early signs of growth stabilisation.
“For now, 7.25-7.35 remains our forecast range for USD/CNY.”
October inflation data due later this week could give more insight to the state of the economy.
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