China’s yuan weakened on Tuesday as the central bank largely stayed on the sidelines and dollar demand appeared to be moderating, traders said.
“Our clients appear to have build heavy dollar positions during the yuan’s rebound since mid-July and their demand appears to be easing sharply today,” said a dealer at a European bank in Shanghai.
“That compared with state banks’ heavy intervention to support the yuan on behalf of the central bank over the past two weeks.”
The People’s Bank of China set the midpoint rate at 6.6451 per dollar prior to the market open, weaker than the previous fix of 6.6277. Spot trading in the yuan opened at 6.6480 per dollar and it was changing hands at 6.6485 at midday, 62 pips away from the previous late session close and 0.05 percent away from the midpoint.
The global dollar index rose to 95.767 from the previous close of 95.713. Since the yuan slipped through the psychologically important 6.7/dollar level on July 18, it has had a mild rebound of 0.8 percent as the central bank stepped in to control the pace of its depreciation.
The Chinese currency has still depreciated 2.4 percent so far this year as the world’s second-largest economy struggles. While headline data suggest the economy is slowly stabilising, it is also becoming more unbalanced with growth more reliant on a steady stream of government spending as private investment cools sharply.
The yuan is likely to continue depreciating for the rest of this year despite its recent rebound, and is probably heading for 6.8/dollar by year-end, traders said. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.43, weaker than the previous day’s 95.45.
The offshore yuan was trading -0.08 percent away from the onshore spot at 6.6538 per dollar.
The yuan market at a glance:
ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.6451 6.6277 -0.26% Spot yuan 6.6485 6.6423 -0.09% Divergence from 0.05% midpoint* Spot change YTD -2.33% Spot change since 2005 24.49% revaluation Key indexes: Item Current Previous Change Thomson 95.43 95.45 0.0 Reuters/HKEX CNH index Dollar index 95.767 95.713 0.1 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint.