HONG KONG, Feb 2: China’s yuan slipped to within striking distance of its daily limit on Monday as investors boosted bets that authorities will tolerate a weaker currency after the latest data suggested the economy was losing further momentum.
China’s factory activity unexpectedly shrank for the first time in nearly 2-1/2 years in January and firms see more gloom ahead, an official survey showed on Sunday, raising expectations that policymakers will take more action to forestall a sharper slowdown.
The final HSBC/Markit Purchasing Managers’ Index for January showed activity in China’s factory sector shrank for the second straight month in January.
The People’s Bank of China set the midpoint rate at 6.1385 per dollar prior to market open, weaker than the previous fix of 6.137.
The spot market opened at 6.2599 per dollar and was at 6.2596 at midday, just a whisker away from the weaker band limit of 6.2613 per dollar. The spot rate is allowed to trade within a range 2 percent above or below the official fixing on any given day.
Market traders said trading was very illiquid with some investors cautious to push the yuan to test the band’s limit as that previously has invited central bank intervention. Analysts at ANZ expect the yuan to trade with a weakening bias in the near term thanks to the dollar’s renewed strength and recent actions taken by global central banks. The dollar has gained 5 percent against a trade-weighted basket of other currencies in the first month of 2015 after a nearly 13 percent rise last year.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.384, -3.85 percent away from the midpoint.
(AGENCIES)
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