SHANGHAI: China’s yuan eased on Tuesday, as some domestic companies rushed to take advantage of an easing dollar, while market sentiment was cautious over possible escalations in Sino-US tension.
The dollar wobbled after a slump in March US manufacturing activity, which pointed to further signs of a slowing economy and trumped renewed inflation concerns following a surprise cut in output by OPEC+.
The data showed US manufacturing activity fell to its lowest in nearly three years in March, as new orders continued to contract.
“So the narrative swung from inflation concerns on higher oil prices as OPEC+ producers cut output in early Asia towards growth fears as the US key manufacturing gauge weakens,” Maybank analysts said in a note.
The People’s Bank of China (PBOC) set the midpoint rate at 6.8699 to the dollar before the market opened, or 106 pips firmer than the previous fix of 6.8805.
In the spot market, the yuan opened at 6.8771 to the dollar and was changing hands at 6.8842 by midday, or 72 pips weaker than the previous late session close.
The slide in the greenback prompted some corporate clients to buy on the dip for their orders, currency traders said, but added the recent surprise oil cut might have a bigger impact on inflation, and influence the Federal Reserve’s monetary outlook.
So the dollar index would not go down too much. “I don’t see clear direction for the yuan in the short term,” said a trader at a foreign bank.
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Worries over geopolitical tension continued to weigh on market sentiment, as US House Speaker Kevin McCarthy is set to host a meeting in California on Wednesday with Taiwan’s President Tsai Ing-wen.
China, which claims the island as its own territory, warned McCarthy not to “repeat disastrous past mistakes” and meet Tsai, saying the move would not help regional peace and stability, but only unite the Chinese people behind a common enemy.
By midday, the global dollar index stood at 102.212, while the offshore yuan was trading at 6.8865 per dollar.