Yuan slips, weighed by mixed trade data, Moody’s outlook

SHANGHAI: China’s yuan eased against the dollar on Thursday after mixed trade data showed more support was needed to lift domestic demand while Moody’s negative outlook on the country’s credit rating continued to dog sentiment.

Data released on Thursday showed while China’s exports unexpectedly grew in November, imports shrank for the month, missing investor expectations.

“The data further dimmed hopes on a consumption-led recovery in China and more policy supports are needed to stimulate demand,” UBS analysts said in a note.

The offshore yuan hovered around the 7.1690-level against the dollar, still reeling after Moody’s downgraded the credit outlook for China from stable to negative, Maybank analysts said.

The weakening of the yuan was also in line with a strengthening dollar over the past week, with the dollar index hovering around a two-week high.

Prior the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1176 per US dollar, 36 pips weaker than the previous fix 7.114 and the weakest level in two weeks.

China’s yuan holds steady as state-owned banks sell dollars

The spot yuan opened at 7.1550 per dollar and was changing hands at 7.1614 at midday, 33 pips weaker than the previous late session close.

Citi’s London spot desk turned bearish on the offshore yuan, after the latest signals from yuan fixings, five separate failed attempts for yuan to strengthen past its 200-day moving average, and with month-end dollar selling out of the way, the bank said in a note.

“Certainly, there could be short-term equity and bond outflows on a knee-jerk reaction that pressures the yuan,” said Chang Wei Liang, FX and credit strategist at DBS.

However, Chang thinks that credit profile of Chinese local government financing vehicle (LGFVs) should improve on greater state support.

This is likely to enhance China’s financial stability and far outweigh any costs relative to a negative sovereign rating outlook, he said.

Thus, Chang expects investor confidence to eventually be restored as growth improves, which should underpin support for the yuan. The global dollar index rose to 104.164 from the previous close of 104.153.

The offshore yuan was trading 82 pips weaker than the onshore spot at 7.1696 per dollar.