SHANGHAI: China’s yuan slipped to a three-week low against the US dollar on Tuesday, dragged down by the country’s central bank setting the official guidance at the weakest level in nearly three months as well as worsening capital outflows.
A broadly stronger dollar has been putting pressure on emerging markets currencies including the yuan and some traders expect China’s central bank to gradually fix the guidance rate weaker.
Prior to the market’s 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 7.1069 per US dollar, the weakest level since February 28 but still around 1300 pips stronger than Reuters’ estimate.
The PBOC has been setting a stronger-than-expected fix for well over a year in what traders said reflected official efforts to stem any sharp, destabilising falls in the yuan.
Traders at Citi said the PBOC could look to slowly move the fix down towards the 7.11-7.12 per dollar levels over the coming weeks, effectively keeping the US currency underpinned.
The spot yuan opened at 7.2350 per dollar and touched a three-week low of 7.2419 in early trade on Tuesday.
It was changing hands at 7.2360 at midday, 18 pips weaker than the previous late session close and 1.82% away from the midpoint.
China’s yuan weakens as dollar rebounds, disappointing data weighs
The currency is down 1.9% this year, pressured by its relative low yields versus other currencies and a struggling property sector.
Maybank analysts said in a note that the yuan’s weakness could be linked to data showing capital outflows worsening in April.
They also noted the tempering of optimism over China’s latest housing rescue plan on concerns of insufficient funding to clear a massive stock of housing inventory.
The global dollar index rose to 104.654 from the previous close of 104.565.
Market participants are waiting on the release of minutes from the US Federal Reserve’s last meeting to gauge its policy path.
The offshore yuan was trading 77 pips weaker than the onshore spot at 7.2437 per dollar.
Comments
Comments are closed for this article.