Yuan Edges Down After Weak Factory Activity, Awaits More Cues

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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 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
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.
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, 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 rose to 92.775 from the
previous close of 92.662.
The offshore yuan was trading 0.06 percent away
from the onshore spot at 6.4582 per dollar.

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– Reuters

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