SHANGHAI: China’s yuan fell to a 4-1/2-month low on Tuesday, as a robust dollar offset greenback sales by state-owned banks and a strong official guidance set for the local currency.
Sources say China’s major state-owned banks were seen selling dollars for yuan in onshore markets on Tuesday, in an apparent attempt to prevent the Chinese currency from sinking further.
China’s yuan fell to a low of 7.2349 on the day, its weakest level since Nov. 2023, despite the central bank setting the midpoint rate with the strongest bias in five months.
Prior to 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 7.0957 per US dollar, 1476 pips firmer than a Reuters’ estimate, the largest such discrepancy since Oct. 2023.
The spot yuan opened at 7.2294 per dollar and was changing hands at 7.2347 at midday, 39 pips weaker than the previous late session close and 1.96% away from the midpoint.
The PBOC has been consistently setting a stronger-than-expected guidance since early last year, which traders have interpreted as an attempt by Beijing to keep the yuan relatively stable and prevent any destabilising falls.
Data on Monday showed US manufacturing grew for the first time in 1-1/2 years in March, highlighting the strength of the economy and further trimming the chance of a June start to the Federal Reserve’s rate-cut cycle.
The dollar index climbed to a more than 4-month high of 105.075 overnight.
China’s yuan weakens against steady dollar despite signs of economic recovery
“It’s all still very much a USD-driven market across FX,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
China’s trade-weighted CFETS yuan basket index rose to 99.83 on Tuesday, highest level since April 2023, according to Reuters’ estimates.
The offshore yuan was trading 267 pips weaker than the onshore spot at 7.2614 per dollar.
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