China's yuan briefly hits three-week low, set for monthly gain

SHANGHAI: China’s yuan briefly hit its lowest point in more than three weeks against the dollar on Thursday before it pared losses on upbeat domestic factory activity data.

Onshore yuan slipped to a low of 6.8433 per dollar, its the weakest level since April 7. But it was changing hands at 6.8382 as of 0315 GMT and if it finishes the late night session at that level, it would have gained 0.73% for the month, its eighth monthly gain in nine months.

Its offshore counterpart last fetched 6.8411 per dollar as of 0315 GMT.

China’s financial markets will be closed for Labor Day holidays from Friday, and trading will resume next Wednesday.

 The yuan picked up on Thursday after China’s factory activity expanded for a second straight month in April on firmer output and stockpiling activity despite external shocks stemming from the Middle East war.

China’s yuan has been one of the best performing emerging market currencies since the outbreak of the Iran war in late February.

Prior to market opening on Thursday, the People’s Bank of China (PBOC) set the midpoint rate at a near one-week low of 6.8628 per dollar and 214 pips weaker than a Reuters’ estimate of 6.8414. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The Politburo meeting on Tuesday “reiterated the goal of stable yuan exchange rate, an environment in which we see more relative-value opportunities,” analysts at BNP Paribas said in a note this week.

 “The PBOC’s recent USD/CNY fixings, in our view, clearly reflect this stance.”

They expect the yuan to trade in a tight range in the near term, unless “there are significant dollar moves that could trigger a response from exporters.”

Currency traders said they will pay attention to the trade data due next Saturday for more clues on the health of the economy.

The dollar index hovered near a more than two-week high after some Federal Reserve policymakers struck a hawkish tone, despite leaving interest rates unchanged. The decision was the most divided since 1992, with three dissenting votes from officials who no longer believe the Fed should signal a bias toward easing.