SHANGHAI: The yuan slipped against the dollar on Monday, pressured by China's slowing economic momentum but lessening expectations for more monetary easing put a floor on further falls in the currency.
The world's second-largest economy grew 4.9% in the third quarter from a year earlier, worse than market expectations, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks. Worries over bubble and credit risks in China's property sector also underminded sentiment.
Economic fundamentals will remain a key factor determining the yuan's value, and a slowdown prompted some market analysts to revise down their forecasts.
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"The increasing downside risk for China growth in Q4 should still dent RMB sentiment and we expect the CNY to fall back to 6.50 at year-end," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.43 per dollar, 86 pips firmer than the previous fix of 6.4386, the strongest since June 17.
In the spot market, onshore yuan opened at 6.4325 per dollar and was changing hands at 6.4375 at midday, 15 pips weaker than the previous late session close.
Several traders said heavy corporate demand for the yuan towards the year-end in light of the country's huge trade surplus could offset some of the yuan's weakness.
Furthermore, the market's easing expectations for an imminent reduction in the amount of cash banks must hold as reserves against their loans also lent some support for the yuan.
Sun Guofeng, head of the central bank's monetary policy department said liquidity in China's banking system would be basically balanced in the fourth quarter, with no big fluctuations, while the PBOC would stick to normal monetary policy, which will be flexible, targeted and appropriate.
"This was a rather clear signal that RRR will not be as forthcoming as anticipated. A more targeted approach could thus require less monetary policy easing and concomitantly, less pressure on the RMB," analysts at Maybank said in a note.
By midday, the global dollar index rose to 94.101 from the previous close of 93.975, while the offshore yuan was trading at 6.4369 per dollar.
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