SHANGHAI: China’s yuan dipped against the dollar on Monday as long-dated yields hit record lows after monthly inflation data added to economic worries and calls for fresh easing.
Meanwhile, the dollar index steadied after US employment data last week reduced bets of aggressive rate cuts by the Federal Reserve.
The onshore yuan changed hands at 7.1060 per dollar around midday, down 0.23% from Friday’s close.
China’s consumer prices accelerated in August to the fastest pace in half a year, due to the higher costs of food from weather disruption, but was short of market expectations, data showed on Monday.
Meanwhile, producer price deflation worsened, stoking expectations of further easing from authorities to stimulate growth.
In unusually strong comments, China’s ex-central bank governor Yi Gang urged efforts to fight deflationary pressure at the Bund Summit in Shanghai last week.
“Looking ahead, following the anticipated first Fed rate cut in September, there may be room for China to lower the RRR as a measure to support growth,” Tommy Xie, head of Greater China research at OCBC, said in a client note.
China’s yuan flat despite weak dollar as easing expectations weigh
“Should the Chinese economy slow further, we believe that Q4 could present a window for additional interest rate cuts.”
The easing expectations helped push the yield on China’s 30-year treasury bonds below 2.30% to a record low in morning trade, despite warning signals from China’s central bank against bond bulls.
Lower Chinese yields would widen the interest rate gap with the US, adding depreciation pressure on the yuan.
Meanwhile, the dollar index steadied on Monday, after last week’s US employment data showed the labor market was not falling off the cliff to warrant a half-point interest rate cut from the Federal Reserve this month.
“Fed officials speaking last week didn’t appear to have any appetite for a 50bp cut to start the easing cycle,” ANZ Research said in a note.
“These data reduce the likelihood of the Fed starting the easing cycle in a forceful manner.”
The offshore yuan traded at 7.1073 yuan per dollar, down about 0.18% in Asian trade.
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