HONG KONG: China’s yuan slipped to a five-month low against the dollar on Thursday despite the central bank’s efforts to steer it higher, as hotter-than-expected US inflation numbers pushed out the expected timing of a first Federal Reserve rate cut.
The yuan was trading at 7.2361 per dollar at 0400 GMT, little changed from the previous close. The central bank’s daily benchmark fixings and support from state-owned banks have slowed its decline but it hit a November low of 7.2370 in early trades.
The currency is down 1.9% this year, pressured by its relative low yields versus other currencies and outflows of foreign investment from an anaemic stock market. It is facing selling pressure as China eases monetary policy, leading to a widening gap between US and Chinese interest rates.
China’s yuan eases, market awaits data deluge from home, abroad for guidance
The People’s Bank of China set the midpoint rate for the yuan at 7.0968 per US dollar prior to market open, 1,654 pips firmer than a Reuters estimate, the biggest discrepancy since Reuters started its estimations in 2018. The spot yuan is allowed to trade in a 2% band of the daily official fixing.
The record discrepancy comes after the offshore yuan dropped the most in three weeks against the dollar overnight.
The dollar rose across the board on Wednesday after data showed US inflation was higher than forecast in March, pushing out the expected timing of a Federal Reserve rate cut to September from June.
Meanwhile, China’s consumer inflation cooled more than expected in March, official data showed on Thursday.
“The latest weakness of the yuan is mostly due to a stronger dollar rather than domestic developments,” said Lynn Song, chief economist for Greater China at ING.
He expects the PBOC to continue to resist rapid yuan depreciation although it is likely to gradually weaken in the near-term.
The global dollar index fell to 105.132 from the previous close of 105.245.
The offshore yuan was trading 0.26% away from the onshore spot at 7.2551 per dollar.