HONG KONG: The yuan weakened on Tuesday after a private sector survey showed China’s factory activity growth contracted for the first time in three months, and investors were disappointed by the lack of detail in the State Council’s economic support measures.
“The yuan has been hovering between the 7.1 and 7.2 per dollar level in recent weeks, there is a lack of strong conviction among investors now,” said Kiyong Seong, lead Asia macro strategist at Societe Generale.
The only clarity for now is that investors noted the central bank’s effort to lower the yuan exchange rate volatility via setting a stronger daily fixing since late June, he said, and thereby limiting the downside of the yuan.
The People’s Bank of China set the midpoint rate, at which the spot yuan is allowed to trade at 2% on either side, at 7.1283 per US dollar prior to market open, firmer than the previous fix 7.1305 and about 200 pips stronger than consensus forecast.
The spot yuan opened at 7.1550 per dollar and was changing hands at 7.1648 at midday, 213 pips weaker than the previous late session close and 0.51% weaker than the midpoint.
The global dollar index rose to 102.009 from the previous close of 101.855.
China’s yuan inches higher after better-than-expected PMI data
The Caixin/ S&P Global manufacturing purchasing managers’ index (PMI) fell to 49.2 in July from 50.5 in June, missing analysts’ forecasts of 50.3 and marking the first decline in activity since April.
The 50-point index mark separates growth from contraction.
The survey echoed the official PMI released on Monday, which fell for a four straight months in July, highlighting challenges for policymakers seeking to revive momentum in China’s post-COVID recovery.
Chinese authorities released additional policy guidelines on Monday hinting at stimulus, but measures to boost the sputtering economy and broader domestic consumption were absent.
“As a whole, it still refrained from providing direct support to the consumer and focuses more on the supply side,” said Maybank analysts in a research note on Tuesday.
The offshore yuan was trading 0.04% weaker than the onshore spot at 7.168 per dollar.
The one-year forward value for the offshore yuan traded at 6.9482 per dollar, indicating a roughly 3.16% appreciation within 12 months.
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