SHANGHAI: China’s yuan eased against the dollar on Monday as weak economic fundamentals dragged on sentiment, outweighing benefits from exporters’ dollar sales towards the end of the year.
The yuan historically strengthens in December and January as Chinese exporters convert more of their foreign exchange receipts into the local currency for various payments, analysts at HSBC said.
But the yuan’s unprecedented yield disadvantage and weak risk sentiment towards Chinese stocks are working against the seasonality, the analysts said, adding weak domestic demand could prompt more monetary easing by the People’s Bank of China (PBOC).
China’s blue-chip CSI300 stock index dropped to its lowest level in more than four years on Monday.
“Although the yuan is no longer a good macro vehicle to express a bearish China macro outlook, its gains should be capped by anaemic economic fundamentals unless the US dollar were to slump badly from here,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
November data showed China’s post-COVID economic recovery still lacking momentum, with retail sales growth missing expectations and most major housing market indicators deteriorating.
Prior to the market’s opening, the PBOC set the midpoint rate around which the yuan is allowed to trade in a 2% band at 7.0933 per US dollar, the strongest level in six months.
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The spot yuan opened at 7.1250 per dollar and was changing hands at 7.1287 at midday, 57 pips weaker than the previous late session close.
The global dollar index fell to 102.472 from the previous close of 102.55.
The offshore yuan was trading 32 pips weaker than the onshore spot at 7.1319 per dollar.
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