China’s yuan hovers near one-month low on widening Mideast war; corporate demand limits losses

SHANGHAI: China’s yuan hovered near a one-month low against the dollar on Wednesday, pressured by a broadly stronger greenback amid a widening Middle East conflict, although losses were limited by rising corporate demand for the local currency.

Israeli and US forces pounded targets across Iran, prompting Iranian attacks around the Gulf as the conflict spread to Lebanon, sent oil prices sharply higher and rattled global markets.

The onshore yuan slipped to 6.9288 per dollar at one point in early trading, not far from a trough of 6.9297 hit late on Tuesday, which was the weakest level since January 9.

It recovered to be trading largely flat at 6.9187 as of 0344 GMT.

Its offshore counterpart was down about 0.06% in Asian trade to 6.9224 per dollar.

Currency traders said recent dollar strength prompted some of their corporate clients to convert their foreign exchange revenue into the Chinese currency in morning deals, which limited the yuan’s losses.

“Such FX settlement partly offset the weakness induced by the firmer dollar,” said a trader at a Chinese bank.

Prior to market opening, the People’s Bank of China (PBOC) set its midpoint rate at 6.9124 a dollar, 36 pips or 0.05% weaker than its previous setting, and 73 pips weaker than a Reuters’ estimate of 6.9051.

 The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

“Overall macro and policy outlook (is) likely to remain intact if oil prices rise only temporarily and moderately,” economists at Standard Chartered said in a note.

There was little market reaction to the release of mixed manufacturing data for February.

Domestic investors are shifting focus to the annual meeting of China’s parliament from Thursday, where major economic targets and the year’s policy agenda will be mapped out.

 The market will be watching for any hints about potential policy ramifications from the Middle East conflict.

“The war in the middle east will likely weigh on the global economy including China, at least in March,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

 “I think the government’s policy stance is flexible this year. If economic (activity) slows further in coming months, I expect the government to boost investment moderately to mitigate the pressure on the economy.”

 Analysts expect the National People’s Congress to show tolerance for slightly slower economic growth this year, opening the door for greater - albeit not decisive - efforts to curb industrial overcapacity and rebalance the export-reliant economy.