China's yuan eases against the dollar as traders search for direction

SHANGHAI: China’s yuan weakened against the dollar on Monday as traders sought clues on potential US rate hikes, and awaited fresh data to assess China’s economic health.

The market’s loss of direction portends more volatility ahead, but the yuan’s ride will likely be smoother due to Chinese central bank guidance, analysts say.

In the short term, “both the dollar and the yuan lack a sense of direction,” Huatai Futures said in a report.

“But the yuan will likely move in an orderly manner in the second half.” On Monday, the onshore yuan changed hands at 6.7871 per dollar at 0302 GMT, roughly 0.14% weaker.

The dollar index was up 0.1% in Asia trade.

Traders will closely watch minutes from last month’s Federal Reserve meeting for clues on whether the Fed will raise US interest rates.

In addition, “US inflation data will need to be closely monitored to judge if the dollar index has peaked,” Nanhua Futures said in a note. As for the yuan, traders need to track fresh economic data to assess the strength of a recovery, the brokerage said.

A survey showed on Friday that China’s services activity expanded at a slightly slower pace in June as growth in new business eased.

Some analysts said the yuan-dollar linkages may have weakened.

“The yuan will be affected by dollar fluctuations, but could be less volatile” as Chinese exports remain robust and authorities have been guiding the market through midpoint rates, Huatai Futures said.

Reflecting the yuan’s growing independence from the greenback, the Chinese currency has gained roughly 2% against the dollar so far this year, despite the dollar index rising 4%, the broker said.