SHANGHAI/SINGAPORE: China’s yuan inched higher against the dollar on Monday, underpinned by slightly better-than-expected factory manufacturing data, while investors continued to wait for more concrete measures and stimulus moves to support the broad economy.
China’s manufacturing activity fell for a fourth straight month in July, albeit at a slower pace, reinforcing the need for further policy support to boost domestic demand.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1305 per dollar, 33 pips firmer than the previous fix of 7.1338.
The central bank continued its weeks-long trend of setting the midpoint firmer than market projections, seen by investors as a sign of the authorities’ growing discomfort over recent yuan weakness.
Monday’s official guidance rate was 219 pips firmer than Reuters’ estimate of 7.1524.
“We expect yuan stability to be maintained as the yuan is already below fair value and supportive for growth, and to avoid outflow risks as policymakers decide on how best to address slowing growth,” said Chang Wei Liang, FX & credit strategist at DBS.
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In the spot market, the onshore yuan opened at 7.1420 per dollar and was changing hands at 7.1417 at midday, 80 pips firmer than the previous late session close.
Traders said investors remained their rangebound trading strategy while awaiting for more details about the stimulus measures as indicated by the past Politburo meeting.
China’s top leaders pledged last week to step up policy support for the economy amid a tortuous post-COVID recovery, focusing on boosting domestic demand, signalling more stimulus steps.
“While an improvement in sentiment towards the growth outlook would support the exchange rate, we expect other factors to continue to weigh on the yuan,” analysts at Goldman Sachs said in a note.
“Namely, the unfavorable interest rate spread between China and the US, which may widen further as the PBOC is expected to cut interest rate to facilitate economic growth.”
By midday, the global dollar index rose to 101.773 from the previous close of 101.622, while the offshore yuan was trading at 7.1432 per dollar. Reuters
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