SHANGHAI: The yuan began August on the same weak trend it has been on for the past five months, as purchasing manager surveys indicated China’s economic recovery remained fragile and concerns over a possible flare-up in Sino-US tension kept investors wary.

The official National Bureau of Statistics survey showed factory activity contracted unexpectedly in July after bouncing back from COVID-19 lockdowns the month before.

Another private survey also showed manufacturing expanded at a slower pace last month, as fresh virus flare-ups and a darkening global outlook weighed on demand.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said the PMI readings highlight the fragile state of the economy.

“With growing indications that Beijing is not willing to unleash massive stimulus to attain the year’s growth target and instead seek a ‘best efforts’ outcome, the People’s Bank of China (PBOC) may have to lean on exchange rate depreciation to support the economy as global growth and export demand weaken further in coming months,” Tan added.

China’s yuan firms as shrinking US GDP sends dollar lower

The onshore yuan opened at 6.7499 per dollar and was changing hands at 6.7515 at midday, 82 pips softer the previous late session close.

Prior to market opening, the PBOC set the midpoint rate at 6.7467 per dollar, 30 pips weaker than the previous fix of 6.7437.

Traders said much of the market focus this week would be on US House of Representatives Speaker Nancy Pelosi’s Asian tour, and a possible stop in Taiwan that could send a chill through already cool relations between Beijing and Washington.

President Xi Jinping warned his US counterpart Joe Biden last week that Washington should abide by the one-China principle and “those who play with fire will perish by it”.

By midday, the global dollar index fell to 105.784 from the previous close of 105.903, while the offshore yuan was trading at 6.7608 per dollar.