SHANGHAI: China’s yuan weakened slightly against the US dollar on Thursday, after surging in the previous session in line with Japanese yen, as data showed the country’s economy was still struggling to stabilise.
The spot yuan opened at 7.2149 per dollar and was last trading 25 pips lower than the previous late session close and 1.36% weaker than the midpoint.
The yuan is up 0.3% against the dollar this week, thanks largely to bounces in the Japanese yen. The Bank of Japan (BOJ) raised interest rates on Wednesday and unveiled a detailed quantitative tightening plan.
But for the year, the Chinese currency is 1.8% weaker, as domestic woes around a moribund property sector, anaemic consumption and falling yields drive capital flows out of the yuan.
A private sector survey on Thursday showed China’s manufacturing activity in July shrank for the first time in nine months as new orders declined, boding ill for the country’s growth momentum in the second half of 2024.
The reading, which mostly covers smaller, export-oriented firms, is in line with an official PMI survey on Wednesday showing manufacturing activity slipped to a five-month low.
Beyond that, Ting Lu, chief China economist at Nomura, said China’s property sector is set to drop further in the second half of 2024, as he cited data from the China Real Estate Information Corporation that growth in contract sales volumes for top 100 developers dropped to -22.7% year-on-year in July from -22.4% in June, despite the low base.
The yuan’s weakness comes even as the US dollar was soft on Thursday, after the Federal Reserve opened the door for an interest rate cut in September, helping keep the yen pinned near its highest since March in the wake of a hawkish pivot from the Bank of Japan.
Ken Cheung, director of forex strategy at Mizuho Securities said “the positive spillover from the JPY rally is likely to wane when the FX positioning adjustment has run its course.”
“The PBOC and BOJ are in opposite monetary policy cycle now,” Cheung said. “Looking ahead, the direction of PBOC-BOJ monetary divergence looks intact in the rest of this year given the bearish China growth outlook due to weak consumption and property downturn, and BoJ’s concerns over inflation risks and JPY depreciation.”
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1323 per dollar, 844 pips firmer than a Reuters’ estimate.
The central bank has been gradually lowering its daily yuan official guidance, well within market projections but with a bias suggesting it is allowing some depreciation, traders and analysts said.
Based on Thursday’s official guidance, the yuan is allowed to drop as far as 7.2749.
The offshore yuan traded at 7.2315 yuan per dollar, down about 0.06% in Asian trade.
The dollar’s six-currency index was 0.086% lower at 103.96.