SHANGHAI: The yuan closed down slightly in spot trade against the dollar on Thursday, after at one point trading at a record distance from the official midpoint, as data showing a further contraction in China's factory activity dampened sentiment.
Economic uncertainty at home and abroad have weighed on the dollar/yuan market exchange rate, but the central bank has used a series of midpoint settings stronger than spot prices to signal that it intends to keep the exchange rate relatively stable, traders said.
As a result, stronger fixings have effectively dragged spot yuan prices closer to the edge of the official trading band, even though spot has traded within a relatively narrow range.
Traders said spot prices are increasingly driven by market forces instead of official guidance, so more negative news has only increased the tendency of the spot yuan to ignore the official fix.
"The market is quite jittery about China's economic slowdown and believes the yuan has the potential to fall slightly in the near term," said a trader at a European bank in Shanghai.
Spot yuan closed at 6.3642 per dollar, down slightly from Wednesday's close of 6.3599. It touched an intraday high of 6.3610 and a low of 6.3659.
The intra-day low of 6.3659 is 0.98 percent away from the midpoint, within 2 basis points of the official trading range limit, the furthest it has traded since the band was widened recently.
Regulators loosened the yuan's trading band - the limit it can rise or fall away from the midpoint in a single day - to 1 percent from 0.5 percent in April.
The People's Bank of China (PBOC) on Thursday fixed the yuan's midpoint at 6.3040 per dollar, slightly weaker than Wednesday's 6.3004, reflecting a global dollar rally after the US Federal Reserve delivered another dash of monetary stimulus and said it was ready to do more if necessary.
But the Fed stopped short of launching a more aggressive programme of buying bonds outright, commonly referred to as "QE3".
"As for the Fed's latest policy move, the market has largely factored in the absence of QE3," the trader said.
China's factory sector contracted for an eighth straight month in June, with export orders and prices turning in their weakest showing since early 2009, a private-sector survey showed on Thursday.
The HSBC Flash Purchasing Managers Index, the earliest monthly indicator of China's industrial activity, fell to a seven-month low of 48.1 in June from a final reading of 48.4 in May. It marked the eighth consecutive month that the HSBC PMI has been below 50, indicating contraction.
Traders said the yuan was likely to trade between 6.33 and 6.37 per dollar next week - regardless of the PBOC's midpoint - unless the US dollar index moved sharply in global markets. The market will be closed on Friday for a public holiday.
In May, the yuan posted its biggest monthly drop on record against the dollar, falling nearly 1 percent, partly in response to the strengthening of the US dollar index against a basket of global currencies and partly as a result of China's economic slowdown.
China's GDP growth slowed to a near three-year low of 8.1 percent in the first quarter, and many economists expect it to fall below 8 percent in the second quarter.
Offshore one-year non-deliverable yuan forward contracts changed hands at 6.4030 on Thursday afternoon to imply yuan deprecation of 0.6 percent against the dollar in the next 12 months based on Thursday's spot yuan close.
Offshore spot yuan traded at 6.3655 in late trade, roughly in line with the onshore spot level.
Comments
Comments are closed for this article.