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Yuan edges down after weak factory activity, awaits more cues

reuters.com · 09/01/2021 02:35
Yuan edges down after weak factory activity, awaits more cues

- China's yuan softened against the U.S. dollar on Wednesday, after signs of slowdown in factory activity and on expectations of more downward pressure on the Chinese currency.

The yuan CNY=CFXS opened at 6.4620 per dollar and was changing hands at 6.4623 at midday, 19 pips weaker from the previous late session close.

The People's Bank of China set the midpoint rate CNY=PBOC at 6.480 per dollar prior to market open, not far from the previous fix of 6.4679.

"The yuan is fluctuating within a narrow range. The central bank appears to be quite happy where it is now," said a trader at a state lender.

"The market is waiting for catalysts. Over the long term, the yuan will likely weaken."

Data on Wednesday showed China's factory activity slipped into contraction in August for the first time in nearly 1-1/2 years as COVID-19 measures and supply bottlenecks dragged on output. nZUN0037RQ

China cut banks' reserve requirement ratio (RRR) in July to bolster a slowing economy, while the U.S. Federal Reserve is heading towards tapering.

"The PBOC's policy shift is expected to continue with more selective liquidity easing. That should mitigate the downside growth risk in China," wrote Chi Lo, senior economist at BNP Paribas Asset Management, adding the Fed is moving in the opposite direction.

But uncertainty remains around when the United States will start to exit its pandemic-era stimulus.

U.S. consumer confidence slipped to a six-month low of 113.8 in August, and consumers are also worried about Delta-variant infection cases and higher inflation, DBS Group wrote in a note.

In addition, worries over supply shortages would further dampen the U.S. growth outlook in the third quarter, it said.

The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.72, firmer than the previous day's 98.64.

The global dollar index =USD rose to 92.775 from the previous close of 92.662.

The offshore yuan CNH=D3 was trading 0.06 percent away from the onshore spot at 6.4582 per dollar.



The yuan market at 5:54AM GMT:


ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.468

6.4679

0.00%

Spot yuan CNY=CFXS

6.4623

6.4604

-0.03%

Divergence from midpoint*

-0.09%

Spot change YTD



1.02%

Spot change since 2005 revaluation


28.07%


Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

98.72

98.64

0.1

Dollar index

92.775

92.662

0.1


*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning.


OFFSHORE CNH MARKET

Instrument

Current

Difference from onshore

Offshore spot yuan CNH= *

6.4582

0.06%

Offshore non-deliverable forwards CNY1YNDFOR= **

6.6341

-2.50%


*Premium for offshore spot over onshore CNY=CFXS

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC.



(Reporting by Samuel Shen and Andrew Galbraith; Editing by Jacqueline Wong)

((samuel.shen@thomsonreuters.com; +86 21 20830018; Reuters Messaging: samuel.shen.thomsonreuters.com@reuters.net))