China's yuan weakened on Wednesday as the dollar strengthened in global markets and after activity in the country's factory sector shrank unexpectedly to a 6-1/2-year low in September. Offshore yuan, however, trimmed earlier losses due to intervention from state banks, trade sources told Reuters. Before the market opened, the People's Bank of China set the midpoint rate at 6.3773 per dollar, 0.08 percent weaker than the previous fix of 6.3721.
The spot market opened at 6.3799 per dollar and was changing hands at 6.3840 by 0740 GMT, 0.13 percent weaker than the previous close. Offshore yuan was at 6.4282, 0.15 percent softer than the previous close. It trimmed some of its earlier losses after it weakened by as much as 0.24 percent around mid-morning. But offshore yuan was still trading 0.69 percent weaker than the onshore spot rate. Trading sources said Chinese state-owned banks intervened after the unexpectedly weak preliminary Manufacturing Purchasing Managers' Index (PMI). The PBOC typically uses state-owned banks to trade on behalf of itself to intervene in trading to influence the yuan's value.
"It appears there is an adjustment in tactics by the central bank to let the yuan move more freely onshore of late while focusing more on offshore markets," said a trader at a European bank in Shanghai. Traders said that the preliminary PMI survey had less impact on the onshore market. "The authorities seemed to accept a moderate depreciation of the yuan more recently," said a trader at a Chinese commercial bank in Shanghai. That lenience has allowed the onshore yuan to move more in line with market supply and demand this week, the trader and others said.
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