HONG KONG: China’s yuan hovered near a five-month low against the dollar and traded a whisker away from its daily downside limit on Friday, weighing down by rising US treasury yields and the yen’s stubborn weakness.
The yuan is down 2.1% against the dollar so far this year, pressured by its relative low yields versus other currencies and by outflows of foreign investment from an anaemic stock market.
It hit a five-month low of 7.2478 on Thursday even though the central bank’s daily benchmark fixings and support from state-owned banks have slowed its decline.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1056 per US dollar, firmer than the previous fix of 7.1058 and remaining consistently higher than market expectations in a show of support.
Spot yuan opened at 7.2409 per dollar and was changing hands at 7.2464 at midday, 0.09% softer than the previous late session close and 1.98% away from the midpoint.
The yuan is facing mounting challenges as sticky inflation in the US dashes hopes of rate cut and buoys the dollar, while a persistently weak Japanese yen is dragging down its Asian peers.
“The dynamics of the interest rate differentials, the USD index, as well as China’s growth data and property market weakness, may still bring episodes of yuan weakness ahead,” UBS analysts said in a note.
China’s yuan steady on weaker dollar
They expect the PBOC will use various tools to prevent the yuan from weakening much beyond 7.3.
By midday, the global dollar index rose to 105.601 from the previous close of 105.598, while the offshore yuan was trading -0.19% away from the onshore spot at 7.2605 per dollar.
The yen fell to the weaker side of 156 per dollar, marking a fresh 34-year trough.