China’s yuan touches 3-week low, looks set for biggest weekly drop since July

SHANGHAI: China’s yuan eased to a three-week low against the dollar on Friday and looked set for its biggest weekly drop in two months, dragged lower by broad greenback strength in global markets.

The dollar held on to steep gains after better-than-forecast US data dampened expectations for further easing by the Federal Reserve this year.

It also comes at a time some major state-owned Chinese banks have been seen purchasing dollars constantly in the spot market in what investors view as an attempt to tamp down volatility and keep the currency from appreciating too quickly amid recent signs of domestic economic slowdown.

“We think the yuan will continue to remain supported in the short term amid firm underlying support,” Barclays analysts said in a note.

“However, further out, potentially weaker export growth, worsening domestic data, ongoing deflation pressures and a potentially firmer dollar, all suggest that the yuan could face renewed downside risks, potential increase in volatility, with attendant risks for increased global FX volatility.”

The onshore yuan eased to a trough of 7.1369 per dollar at one point, the weakest level since September 5, before trading at 7.1329 as of 0414 GMT.

If it finishes the late night close at the midday level, it would have lost 0.2% for the week, the biggest weekly loss since mid-July.

Its offshore counterpart traded at 7.1415 per dollar as of 0414 GMT.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1152 per dollar, its weakest since August 26.

The spot yuan is allowed to trade up to 2% either side of the fixed midpoint each day.

Despite Friday’s much weakened official midpoint guidance, it remained stronger than market projections, with traders interpreting it as an official sign to keep the yuan stable.

The official fixing was 287 pips firmer than a Reuters’ estimate of 7.1439, bringing the forecast gap to the widest level since September 10.

Separately, traders will shift their attention to a string of upcoming economic data including industrial profits on Saturday and September manufacturing activity due next Tuesday for more clues on the health of the economy.