HONG KONG: The yuan eased to a six-week low on Monday as new bank loans slumped in July, deepening investors’ concerns about China’s faltering economy, while property developers’ recent repayment troubles curbed investors’ appetite for yuan assets.
The People’s Bank of China set the daily midpoint rate at 7.1686 per US dollar prior to market open, weaker than the previous fix at 7.1587, but over 700 pips stronger than market consensus.
The yuan is allowed to trade in a band 2% either side of the fix.
The spot yuan opened at 7.2515 per dollar and was changing hands at 7.2600 at midday, 212 pips weaker than the previous late session close and 1.28% weaker than the midpoint.
The dollar index rose to 103.015 from the previous close of 102.842.
China’s new bank loans in July tumbled 89% to 345.9 billion yuan ($47.80 billion) from June as other key credit gauges also weakened, even after policymakers cut interest rates and promised to roll out more support for the faltering economy.
The reading was the lowest since late 2009 and fell far short of analysts’ forecasts. It came days after other grim data which showed the world’s second-largest economy slipped into deflation last month while exports and imports plummeted, adding pressure on Beijing to roll out more forceful stimulus measures.
“The July credit data highlights the current weak credit demand from both households and corporates,” said Bank of American analysts in a research note on Monday.
China’s yuan barely budges ahead of US inflation data
Still, Bank of America (BoA) expects limited room for the central bank to roll out significant monetary easing, given policymakers’ vow to ensure a stable yuan exchange rate.
BoA expects a total of 15 basis points cut in the one-year loan prime rate in the third quarter as the authorities seek to restore some credit demand.
Further weighing on the yuan, top private property developer Country Garden suspended trading of its 11 onshore bonds on Monday, triggering a sell-off of its shares.
There were reports last week that Country Garden missed payments for two dollar bond coupons due on Aug. 6 totalling $22.5 million, stirring concerns over a property sector already grappling with weak buyer demand and defaults.
“We saw net outflow from the stock connect almost everyday last week, reversing the initial net inflow we saw in late July. The negative news from Country Garden has caused investors to be wary about (buying yuan assets) and sit on the sidelines,” said Khoon Goh, head of Asia research at ANZ.
Investors are awaiting the release of key economic data on Tuesday, including July retail sales, industrial output and unemployment data.
The offshore yuan was trading 0.26% weaker than the onshore spot at 7.279 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 7.058, 1.57% away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
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