SHANGHAI: China’s yuan slipped against the dollar on Monday after the official midpoint snapped five straight sessions of strengthening, while investors anxiously await manufacturing activity data for more guidance.
China is scheduled to release the closely watched purchasing managers index for November this week.
The data is considered a leading indicator of the health of the world’s second-largest economy after a string of mixed data in October pointed to an uneven and bumpy recovery path.
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 7.1159 per dollar, 8 pips weaker than the previous fix of 7.1151.
Monday’s fixing was the first weakening since Nov. 17, however, it continued to come in firmer than market participants had projected, traders and analysts said, noting that the trend of setting the daily midpoint rate with strengthening bias has persisted for months.
Monday’s midpoint was 302 pips stronger than Reuters estimate of 7.1461.
“There will be an ongoing fixation with the PBOC’s setting of the USD/CNY fixing,” analysts at HSBC said in a note.
“We note how it (USD/CNY) has been set lower than expected but spot has started to drift higher again. The RMB’s recent strength could be losing steam.”
They added that China’s PMIs due later this week should be a “reminder that the economy is running at a subdued level, which argues against the yuan strength.
In the spot market, the onshore yuan opened at 7.1420 per dollar and was changing hands at 7.1525 at midday, 37 pips weaker than the previous late session close.
The yuan market may consolidate around current levels in the near term after recent gains, said a trader at a Chinese bank, “but seasonal corporate dollar settlement should emerge soon to support the yuan.”
Chinese exporters traditionally settle more of their foreign exchange receipts into the yuan towards the year-end for various payments, including year-end bonus handouts. And such dollar/yuan conversions should naturally prop up the local currency.
By midday, the global dollar index fell to 103.388 from the previous close of 103.403, while the offshore yuan was trading at 7.1599 per dollar.
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