China’s yuan dips on firmer dollar but strong exports limit losses

HONG KONG: China’s yuan eased slightly against the firmer dollar on Tuesday, but losses were capped by better-than-expected export data.

China’s exports - one of the few bright spots in the sputtering economy - beat forecasts in August, expanding by 8.7% year-on-year by value, the strongest pace in 17 months, customs data showed on Tuesday.

Imports, however, missed forecasts and grew just 0.5%. That follows lower-than-expected inflation data published on Monday, highlighting still weak domestic demand.

By 0352 GMT, the yuan was 0.05% lower at 7.1179 to the dollar after trading in a range of 7.1170 to 7.1258.

“China’s economy continues to show diverging trends with weak domestic demand and strong export competitiveness, both reflecting the domestic deflationary pressure,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

Meanwhile, the dollar continues to recover as investors reduced their bets on an outsized rate cut from the Federal Reserve next week, after mixed U.S. job reports.

Yuan down against dollar

Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1136 per dollar, 4 pips firmer than a Reuters’ estimate.

The yuan is down 0.4% against the dollar this month, and 0.2% weaker this year. It has been under pressure since early 2023 as a prolonged property crisis, anaemic consumption and falling yields drive capital flows out of yuan, and foreign investors stay away from China’s struggling stock market.

Adding to the worries are escalating trade tensions, The U.S. House of Representatives on Monday passed a bill that aims to restrict business with China’s WuXi AppTec, BGI and several other biotech companies on national security grounds.

While recent lacklustre data and mounting trade worries are raising calls for more policy easing to revive China’s economy, Alexander Redman, chief equity strategist at CLSA, said China’s central bank is facing a difficult balancing act.

China wants more settlement of international trade in Renminbi, “it is difficult to convince your trade partners to do that if your currency is weakening as a result of aggressive inflationary policy,” he said.