SHANGHAI: China’s yuan slipped to a one-month low against the dollar on Tuesday, breaching a key threshold, pressured by a combination of weak domestic economic data and growing bets US rate cuts will follow a measured pace in the near term.
While Chinese authorities have recently announced a myriad of support steps to spur economic growth, data has continued to underwhelm with export figures released on Monday highlighting the challenges bedevilling the Asian giant.
The yuan traded both onshore and offshore weakened past the psychologically important 7.1 per dollar level in morning deals.
The onshore yuan weakened to a low of 7.1133 per dollar, the softest level since Sept. 13, before changing hands at 7.1127 as of 0415 GMT.
Its offshore counterpart hit a trough of 7.1243 per dollar, the weakest since Sept.12, before trading at 7.1238 around midday.
The yuan is down 1.3% against the dollar this month, and 0.2% weaker this year. Some traders said their corporate clients, mostly exporters, have stopped settling their receipts in the yuan as they now expect more weakness for the Chinese currency in the months ahead.
Market expectations the US Federal Reserve will resist repeating September’s outsized cut to rates in the near term is also a factor in the yuan’s outlook, traders say.
“We will have US payrolls, US presidential election and Fed decision in early November, and dollar/yuan’s trading range is likely to move upward,” said a trader at a foreign bank, noting the implied volatility in one-month dollar/yuan options have surged to the highest level in nearly two years.
China’s yuan eases, markets wait on detailed fiscal measures
“Yuan can be at risk of weakening further should the next set of activity and property data for September due end of this week turn out weaker,” Maybank analysts said in a note.
China is due to release its third-quarter gross domestic product and other activity indicators on Friday.
China’s export growth slowed sharply in September while imports also unexpectedly decelerated, undershooting forecasts by big margins.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0830 per dollar, its weakest since Sept. 19, and 10 pips firmer than a Reuters’ estimate.