SHANGHAI: China’s yuan hovered near a one-month low against the dollar on Monday while investors cautiously await economic data from both home and abroad for more clues on the currency outlook.
Friday’s reading for the core personal consumption expenditures price index in the United States, the Federal Reserve’s preferred inflation measure, is expected to shed some light on the US central bank’s interest rate trajectory.
In China, market participants are keen to gauge the May manufacturing data due later this week for the health of the world’s second-largest economy.
The yuan is down 2% against the dollar this year and set for a fifth monthly drop in May, pressured by its relative low yield versus other currencies and a monetary policy divergence with other countries.
Prior to the market opening on Monday, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1091 per dollar, 11 pips firmer than the previous fix of 7.1102.
In the spot market, the onshore yuan opened at 7.2405 per dollar and was changing hands at 7.2451 at midday, 16 pips softer than the previous late session close.
The midday level was not far from a near one-month low of 7.2460 hit last Friday.
China’s yuan steady on weaker dollar
Traders said the Fed’s policy stance remained the key factor driving the currency market for the time being, and they would pay close attention and digest Fed officials’ recent comments.
They added that seasonal factors are expected to weigh in soon to add to downside pressure on the yuan.
“We expect the RMB to weaken due to the upcoming dividend season, tariff risks, a wide USD–RMB yield differential and China’s own reflation needs,” said Ju Wang, head of Greater China FX & rates strategy at BNP Paribas.
Overseas-listed Chinese companies usually have to make foreign exchange purchases, which require selling yuan, to fulfill dividend payouts to their offshore shareholders between May and August.
HSBC expects $66 billion worth of dividends to be made this year.
The currency market had a muted reaction to China’s April industrial profit data from the National Bureau of Statistics (NBS) on Monday that showed a swing back to positive territory.
NBS statistician Wei Ning noted that “domestic effective demand remains insufficient while the external environment is still complicated and severe.”
At midday, the global dollar index fell to 104.696 from the previous close of 104.724, while the offshore yuan was trading at 7.258 per dollar.