SHANGHAI: China’s yuan eased against the dollar on Wednesday as weak manufacturing sector data reinforced expectations of further policy easing steps over the near term.
Long-dated China government bonds kept rallying with their yields falling to the lowest levels in nearly 22 years, driven by bets of more monetary easing and short-covering.
China’s purchasing managers’ index (PMI) contracted for the fourth straight month in January, an official factory survey showed on Wednesday, suggesting the sprawling sector was struggling to regain momentum at the start of 2024.
The weak manufacturing figures, on top of a slew of lackluster data and negative economic news, reinforce the need for more stimulus to prop up growth, said UBS analysts.
Some seasonality factors are also weighing on the yuan.
More people are exchanging the yuan for dollars ahead of Lunar New Year, which could drag on the yuan, traders said.
The most-active contracts for both 10-year, and 30-year treasury futures hit records at the market opening.
Yields have an inverse relation with bond prices.
China’s yuan inches up, gains capped by policy easing bets
The falling yields in China are contributing to a widening interest rate gap between China and the United States, putting further pressure on the yuan.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1039 per US dollar, 16 pips firmer than the previous fix 7.1055.
The spot yuan opened at 7.1754 per dollar and was changing hands at 7.1817 at midday, 28 pips weaker than the previous late session close.
The Yuan has declined 1.2% against the dollar for the month so far.
The global dollar index rose to 103.615 from the previous close of 103.397.
The offshore yuan was trading 83 pips weaker than the onshore spot at 7.19 per dollar.