China’s yuan lingers near 6-month low on faltering recovery, weak PBOC fixing

CHINA’S yuan weakened on Tuesday and lingered at a six-month low against the dollar, weighed down by concerns over China’s post-Covid recovery losing steam and a lack of direct intervention by the central bank to curb the currency’s fall.

Prior to the market open, the People’s Bank of China (PBOC) set the midpoint rate at 7.0818 per US dollar, weaker than the previous 7.0575 fix and the weakest level in nearly six months.

Since the yuan fell below the key 7-level on May 17, the central bank has been setting the fix broadly in line with market estimates, with investors taking it as a sign that the PBOC would tolerate further weakness in the yuan.

“The weaker fixing shows that the Chinese authorities are not worried about the weakening of the yuan, as long as the speed of the weakening is orderly,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.

Spot yuan opened at 7.0722 per dollar and was changing hands at 7.0924 at midday, 218 pips weaker than the previous late session close and 0.15 per cent weaker than the midpoint.

The spot rate is currently allowed to trade in a range 2 per cent above or below the official fixing on any given day.

The recent yuan weakness has been caused by disappointing April economic data that showed that recovery from the country’s reopening might have lost some steam. Profits at China’s industrial firms for the first four months this year slumped 20.6 per cent from a year ago, according to data released last Saturday.

Still, the yuan will strengthen again in the second half, as China’s recovery will regain momentum on the back of improved consumption, said UBS CIO, a research unit under the Swiss bank’s global wealth management division, in a note on Tuesday.

“The pick-up in activities in the service sector will bolster employment and household income, and this will help various economic sectors in the second half,” it said.

SEE ALSO

Hawkers back on China’s streets as economic recovery teeters

China considers tax breaks for manufacturers as economy cools

China’s holiday spending boom masks patchy recovery

UBS CIO expects the yuan to strengthen to 6.6 per dollar by December.

On Wednesday, investors will be watching the official purchasing managers’ index (PMI) for May. A Reuters poll shows a median forecast at 49.4, from 49.2 in April, indicating China’s factory activity likely contracted last month.

The global dollar index rose to 104.233 from the previous close of 104.206. The index is set to end the month with a gain of 2.5 per cent.

The offshore yuan was trading 0.12 per cent weaker than the onshore spot at 7.1012 per dollar. The one-year forward value for the offshore yuan traded at 6.8938 per dollar, indicating a roughly 3.01 per cent appreciation within 12 months. REUTERS