HONG KONG, Nov 1: China’s yuan is set to record its biggest weekly loss in more than 10 months against the dollar, after the central bank set a weaker midpoint for the fifth consecutive day to reflect a rebound in the global dollar index.
The People’s Bank of China (PBOC) has guided the yuan to a series of record highs since Oct. 11, which saw the Chinese currency gaining 0.6 percent within two weeks. But the uptrend paused this week.
Traders expect the yuan to consolidate until the Communist Party’s third plenum meeting to be held from next Saturday, as Beijing tries to dampen expectations that its currency is a one-way play again.
Spot yuan traded at 6.0944 near midday, little changed from Thursday’s close of 6.0945. The PBOC fixed its official midpoint at 6.1452, 0.04 percent lower than the previous day’s 6.1425.
‘Corporate demand to sell dollars still dominates, though the midpoint continues to weaken today,’ said a trader at a Chinese bank in Shanghai.
‘The central bank does not want the yuan to rise that fast and it is likely to stay at the current level for a while.’
Despite the yuan’s weakness this week – down 0.17 percent and the biggest weekly drop since the week ended Dec. 14, 2012 – the upside trend for the ‘redback’ remains intact given China’s improved fundamentals.
The manufacturing sector in the world’s second-largest economy grew at its fastest pace in 18 months in October, adding to signs of a stabilisation in China as the government readies a series of key economic reforms.
The official Purchasing Managers’ Index (PMI) stood at 51.4 last month, up from September’s 51.1 and above a forecast of 51.2 in a Reuters poll of economists.
Traders also believe the PBOC will be in more control over the pace of yuan appreciation as the U.S. Appears to have shifted its focus on China to Germany in its semi-annual report.
The U.S. Reprimanded Germany on Wednesday, saying its exporting prowess was hampering economic stability in Europe and hurting the global economy. The criticism of Germany stood out for its stark language and prominent placement.
The onshore spot yuan market at a glance:
Item Current Previous Change
PBOC midpoint 6.1452 6.1425 -0.04%
Spot yuan 6.0944 6.0945 0.00%
Divergence from midpoint* -0.83%
Spot change ytd 2.23%
Spot change since 2005 revaluation 35.81%
*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 1 percent from the official midpoint rate it sets each morning.
(agencies)
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