SHANGHAI: China’s yuan slipped slightly against the dollar on Thursday, as the country’s export growth surprised investors to the downside, but analysts said further currency weakness was expected to be limited.

China’s exports fell more than expected in June year-on-year, while imports also contracted, in the worst showing for outbound shipments from the world’s second-largest economy in three years.

Prior to the market’s open, the People’s Bank of China set the midpoint rate at 7.1527 per US dollar, 238 pips firmer than the previous fix 7.1765.

The spot yuan opened at 7.1680 per dollar and was changing hands at 7.1687 at midday, 37 pips weaker than the previous late session close.

Despite the strengthening of yuan against the dollar in recent days, the yuan has underperformed amid the US dollar’s retreat, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.The trade-weighted CFETS Yuan Basket Index dropped to 96.22, the lowest level since early 2021.

The June import contraction confirmed weakening growth momentum through the second quarter, Tan said.

Despite the trade data weakness, traders and analysts believe further downside in yuan is limited by China’s smoothing measures such as setting stronger fixes and potential stimulus to be announced at the July Politburo meeting.

China’s yuan weakens, hurt by disappointing inflation data

“Together with the hope for more non-monetary stimulus to be announced by the end of the month, it may help put a floor on front-end RMB yields and cap the upside of the dollar against yuan over the near term,” said Jingyang Chen, Asia FX Strategist at HSBC.

The global dollar index fell to 100.443 from the previous close of 100.521.

The offshore yuan was 38 pips weaker than the onshore spot at 7.1725 per dollar.

The one-year forward value for the offshore yuan traded at 6.9551 per dollar, indicating a roughly 3.13% appreciation within 12 months.