(Reuters) – SHANGHAI, July 1 (Reuters) – On Thursday, China’s yuan continued to fall against the dollar after posting its worst monthly decrease since August 2019, pulled lower by broad dollar momentum in global markets.
Traders noted that temporary closures of certain big state-run banks in Beijing for the Chinese Communist Party’s 100th anniversary festivities on July 1 had decreased volumes and liquidity.
During major economic and political developments, domestic financial markets are usually steady.
The People’s Bank of China (PBOC) set the midpoint rate at 6.4709 per dollar, a near one-week low, down 108 basis points (0.17 percent) from the previous fix of 6.4601.
Onshore yuan began at 6.4620 per dollar in the spot market and was changing hands at 6.4640 at midday, down 62 pips from the previous late session finish.
Traders said the yuan’s weakness overnight was due to broad dollar rise, and many investors are now looking forward to a major U.S. job report due on Friday for hints on when the Federal Reserve would begin to reduce stimulus.
Markets continue to wager that further dollar strength will put additional downward pressure on the yuan, according to a yuan trader at a Chinese bank, with many seeing 6.5 per dollar as the next critical level.
Despite rising expectations in the United States for a Fed taper and interest rate hikes, many observers anticipate the Chinese central bank will remain unchanged for the next two years, despite a spate of recent economic indicators revealing an uneven rebound in the world’s second-largest economy.”
Given the recent strength of the Chinese yuan, which has been bolstered by a large trade surplus, FDI, and portfolio inflows, we anticipate the PBOC will wait even longer this time to respond to Fed rate hikes “Standard Chartered economists wrote in a note.
In spring, the yuan soared to three-year highs versus a falling dollar, but it fell 1.3 percent in June when the Federal Reserve startled investors by hinting that rate hikes could come sooner than expected.
The yuan remains strong versus a basket of China’s trading partners’ currencies. On Thursday, the CFETS basket index broke beyond the 98 mark once more, rising to 98.01.
Authorities are largely expected to set a ceiling of 98 for the index, according to the markets.
China’s manufacturing activity grew at a slower pace in June, according to a private poll released on Thursday, as the reappearance of COVID-19 cases in the export province of Guangdong, as well as supply chain issues, drove output growth to its lowest level in 15 months.
The global dollar index gained to 92.394 by midday, up from 92.367 at the previous closing, while the offshore yuan was trading at 6.4688 per dollar.
At 0400 GMT, the yuan market was as follows:
PBOC midpoint 6.4709 6.4601 -0.17% ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4709 6.4601 -0.17%
6.464 6.4578 -0.10 percent Spot yuan
Spot change YTD 0.99 percent, divergence from -0.11% middle
Since 2005, there has been a spot change. Revaluation of 28.04 percent
Indexes that are important:
Item Previous Change Previous Item
98.07 97.9 0.2 98.07 97.9 0.2 98.07 97.9
Dollar index 92.394 92.367 0.0 Reuters/HKEX CNH index Dollar index 92.394 92.367 0.0
*The exchange rate between the US dollar and the Chinese yuan has diverged. If the figure is negative, it means the spot yuan is trading higher than the midpoint.
The People’s Bank of China (PBOC) allows the official midpoint rate, which it sets each morning, to climb or fall by 2%.
CNH MARKET OFFSHORE
Instrument Current Distinction from the Onshore
Offshore spot yuan 6.4688 -0.07% * Offshore 6.6384 -2.52 percent non-deliverable forwards ** Offshore 6.6384 -2.52 percent non-deliverable futures
*Premium for an offshore location over an onshore location **
Since non-deliverable forwards are settled against the midpoint, the figure indicates the discrepancy from the PBOC’s official midpoint.
(Winni Zhou and Andrew Galbraith contributed reporting; Kim Coghill edited the piece.)/n
