SHANGHAI: China’s yuan held steady against the dollar on Thursday, underpinned by signs of slight improvements in manufacturing activities and persistently firmer-than-expected official guidance fix.
China’s manufacturing activity contracted for a fifth straight month in August, but at a slower than expected pace, an official factory survey showed, maintaining pressure on Beijing to step up policy support for the stuttering economy.
“Markets are anxiously awaiting signs of improvements in the domestic economy, and if such a sign emerges, it will quickly lift the yuan,” said a trader at a Chinese bank, adding the economic fundamentals remain the key factor deciding the yuan’s value.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1811 per dollar, 5 pips firmer than the previous fix of 7.1816.
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Thursday’s official guidance, the strongest since Aug. 15, continued its months-long trend of coming in stronger than market projections, which traders pointed to Beijing’s discomfort over the yuan’s persistent weakness.
Thursday’s midpoint was 954 pips firmer than Reuters’ estimate of 7.2765.
“Although the renminbi is under pressure to depreciate in the short term, the market is still quite convinced that the central bank has the ability to control (the currency), capital outflows and cross-border capital flows,” said Wang Tao, chief China economist for UBS.
“So generally speaking, we think the yuan will fluctuate at current levels and is likely to rebound slightly towards the year-end in reacting to dollar weakness.”
In the spot market, the onshore yuan opened at 7.2850 per dollar and was changing hands at 7.2883 at midday, 7 pips firmer than the previous late session close.
Separately, two of China’s biggest cities eased mortgage curbs and the country’s top banks flagged mounting risks from the deepening property sector turmoil on Wednesday, as Beijing ramps up efforts to shore up the sputtering economy.
By midday, the global dollar index fell to 103.129 from the previous close of 103.157, while the offshore yuan was trading at 7.2955 per dollar.
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