Yuan eases from 3-year peak as factory activity stalls

HONG KONG: China’s yuan paused its rally on Monday after climbing to a three-year peak against the dollar, as the latest official survey on factories showed activity stalled in May.

 The yuan was 0.03% lower at 6.7682 to the greenback, having gained for two straight weeks and moving to its strongest level since early 2023.

 The offshore yuan fetched 6.7671, down about 0.03% in Asian trade.

 China’s factory activity stalled in May with new export orders falling sharply, an official survey showed on Sunday, following data showing growth momentum cooled in April.

“Even as economic fundamentals show signs of cooling, the RMB has remained relatively strong with core support coming from export data… If overall export growth decelerates significantly, short-term appreciation support for the RMB may weaken,” analysts at Nanhua Futures wrote.

Recent yuan strength has also created a self-reinforcing appreciation dynamic, prompting corporates to defer dollar purchases and accelerate FX settlement. Pent-up dollar-buying demand related to dividend payout could be released in concentrated fashion if the strength eased, exerting pressure on the currency, they added.

Bank of America sees a seasonal tailwind for the dollar versus yuan as the dividend payment season for Hong Kong-listed Chinese companies gets underway, with June to August typically the peak period.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.8167 per dollar, its strongest since February 14, 2023, and 524 pips weaker than a Reuters’ estimate.

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

 In the broader currency market, the safe-haven dollar was a touch stronger on the day after a weekly loss, as markets awaited the results of peace talks in the Middle East and signals on the timing of central bank rate hikes.

The dollar’s six-currency index was 0.039% higher at 99.05.

Oil prices rose more than 2% in early trading after Israel ordered troops to move further into Lebanon in the battle with the Iranian-backed Hezbollah militant group, despite a ceasefire announced more than six weeks ago.