SHANGHAI: China’s yuan firmed on Wednesday as the US dollar stabilised after climbing to a two-week high, as traders digested a slew of China’s economic data and await US payrolls data due on Friday.
Growth in China’s services sector activity slowed in August despite the summer travel peak, prompting some firms to cut staff amid concerns about rising costs, a private-sector survey showed on Wednesday.
The miss in the service activities was not unexpected, as it came after China’s official Purchasing Managers’ Index (PMI) sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders.
Meanwhile, the US dollar stabilised after rising to a two-week high on Tuesday, despite the tech-led equity selloff overnight, as investors await Friday’s US payrolls report that could shape the path of interest rate cuts from the Federal Reserve.
Prior to the 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 7.1148 per dollar, 19 pips firmer than a Reuters’ estimate.
Pessimism is taking hold for domestic firms and China’s major importers, said Alex Loo, FX and macro strategist at TD Securities, adding that weak sentiment among importers will be a headwind for exports.
“We expect the PBOC to cap the yuan strength to support exporters,” said Loo.
Market focus was on whether sharp gains for the currency could prompt exporters to start converting an estimated $500 billion in accumulated receipts into yuan.
The spot yuan opened at 7.1141 per dollar and was trading 77 pips firmer than the previous late session close as of 0227 GMT and only 7 pips stronger than the midpoint.
The yuan is down 0.3% against the dollar this month, and 0.2% weaker this year. It has been under pressure since early 2023 as a prolonged property crisis, anaemic consumption and falling yields drive capital flows out of yuan, and foreign investors stay away from its struggling stock market.
“I would look past the overnight equity turmoil. The relative stability of the US dollar overnight also suggests that the long USD carry trade that caused so much trouble a month ago is (probably) less of an issue this time,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
The dollar’s six-currency index was 0.049% lower at 101.65. The offshore yuan traded at 7.112 yuan per dollar, up about 0.13% in Asian trade.
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