SHANGHAI: China’s yuan weakened on Monday, pressured by the dollar that stayed near six-week highs, despite the latest data signalling the economy’s recovery is gaining traction and the central bank’s sustained efforts to stabilise the currency.
Some analysts said the recovery needed to be stronger for the yuan to benefit and also mentioned concerns that Beijing may now refrain from launching a bigger monetary and fiscal stimulus to provide an additional boost to the economy.
Prior to the market’s 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 7.0938 per US dollar, firmer than the previous fix 7.095.
The strongest fixing since March 13 was also 1,253 pips stronger than a Reuters’ estimate of 7.2191, underscoring the PBOC’s resolve to support the yuan.
In the spot market, the yuan opened at 7.2227 per dollar and was changing hands at 7.2292 at midday, 77 pips weaker from the previous late session close.
China’s manufacturing activity expanded at the fastest pace in 13 months in March, with business confidence hitting an 11-month high, driven by growing new orders from customers at home and abroad, a private survey showed on Monday.
Yuan steady as central bank sets firmest fixing in a month
The data is in line with an official factory survey showing China’s manufacturing activity expanded for the first time in six months in March.
The upbeat results followed recent better-than-expected export and retail sales data, suggesting a bright start to the year for the world’s second-biggest economy.
“The good data on its own provides some hope that the weakness in China’s economy may be bottoming out,” said Maybank analysts in a note.
“However, it could also put the Chinese government on hold in rolling out bigger monetary and fiscal stimulus to provide an additional much needed boost to the economy.
In addition, we probably need stronger traction in recovery to give yuan bulls more conviction.“
The dollar was broadly steady on Monday.
Data showing easing US prices bolstered bets that the Federal Reserve could cut interest rates in June.
The global dollar index was at 104.526 compared to previous close of 104.546 and remained close to the six-week high of 104.73 it touched last week.
The offshore yuan was trading at 7.2517 per dollar.
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