China’s yuan is set to weaken for the eighth consecutive session against the U.S. dollar on Monday despite a firmer midpoint set by China’s central bank. A surge in the yuan’s value at the end of May had been largely engineered by the authorities, but traders have shift their focus to economic fundamentals and doubt about how long the central bank will keep money rates high. The People’s Bank of China set the midpoint rate at 6.822 per dollar prior to market open, firmer than the previous fix 6.8238. The spot market opened at 6.8340 per dollar and was changing hands at 6.8407 at midday, 27 pips weaker than the previous late session close.
United Overseas Bank Limited Co (UOB) saw improving upward momentum for the U.S. dollar, predicting that if the yuan stays persistently below the 6.8370 level against the greenback, the Chinese currency could decline further to 6.8550. In the longer term, some economists see the West and the East heading in different directions, marking the big monetary policy divergence, and potentially affect capital flows, and thus, currency values.
“Central banks in developed economies are leaning towards tightening. In emerging Asia, by contrast, the bias remains for easing,” Frederic Neumann, HSBC’s Co-head of Asia Economic Research, wrote in a note on Monday.In China, although regulatory tightening has squeezed rates higher of late, “still, it remains to be seen how long that will last: with growth bound to decelerate again, and inflation still nailed to the floor, there are limits to the PBoC’s ability to press the brakes.” The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.88, weaker than the previous day’s 94.1. The global dollar index rose to 97.273 from the previous close of 97.264.