Yuan weakens to 1-week low as market plays catch-up with firmer dollar

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SHANGHAI — China’s yuan eased to a one-week

low against the dollar on the first trading day after the long

Labor Day holiday, as investors played catch-up with broad

strength in the greenback in global markets.

Domestic currency traders said the yuan continues to track

movements in the dollar, which hovered below a two-week high on

Thursday, consolidating ahead of a key U.S. jobs report that may

provide clues on when the Federal Reserve will dial back

monetary stimulus.

Prior to market opening, the People’s Bank of China (PBOC)

set the midpoint rate at 6.4895 per dollar, 223 pips

or 0.34% weaker than the previous fix last Friday of 6.4672 and

the softest since April 27.

In the spot market, onshore yuan opened at 6.4800

per dollar and eased to a low of 6.4846 at one point, the

weakest since April 28. By midday, spot yuan was changing hands

at 6.4797, 52 pips softer than the previous late session close.

Traders said while the yuan’s broad trend remained largely

dependent on the global dollar index, sentiment was buoyed by a

strong rebound in tourism revenue during the long holiday,

suggesting consumption and economic recovery continued to gather

steam.

Official data from the Ministry of Culture and Tourism

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showed that domestic tourism revenue booked 113.2 billion yuan

($17.47 billion) during the five-day Labor Day holiday, up

138.1% from a year earlier, and had recovered to 77% of

pre-COVID levels.

“Consumption recovery will help fuel the growth momentum

ahead, and we see policy stability ahead of the CCP’s (Chinese

Communist Party’s) centenary celebration in July,” Citi analysts

said in a note.

Markets are also focused on Sino-U.S. relations.

U.S. Trade Representative Katherine Tai said on Wednesday

she expects to engage “in the near term” with Chinese officials

to assess their implementation of the “Phase 1” trade deal

between the two countries, with the outcome to influence the

fate of Washington’s punitive tariffs on Beijing.

“That says, the first China-U.S. trade talks under Biden’s

presidency could take place any time soon, with the issues on

the China’s intellectual property protection and the purchases

of U.S. goods in focus,” said Ken Cheung, chief Asian FX

strategist at Mizuho Bank in Hong Kong.

“While we do not look for a new China-U.S. trade war in the

near term, any escalation in China-U.S. tensions alongside

broader financial sanctions could keep the CNH and CNY on the

back foot.”

Separately, cash conditions in the interbank market loosened

at the start of the month, as investors shrugged off the PBOC’s

biggest cash drain on a net basis since Feb. 22.

Loose cash conditions usually weigh on the currency.

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The PBOC injected 10 billion yuan through reverse repos

earlier in the session. With 50 billion yuan of such loans

maturing, the central bank withdrew a net 40 billion yuan from

the financial system.

By midday, the global dollar index stood at 91.338,

while the offshore yuan was trading -0.01 percent away

from the onshore spot at 6.4802 per dollar.

The yuan market at 0354 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.4895 6.4672 -0.34%

Spot yuan 6.4797 6.4745 -0.08%

Divergence from -0.15%

midpoint*

Spot change YTD 0.75%

Spot change since 2005 27.73%

revaluation

Key indexes:

Item Current Previous Change

Thomson 97.1 96.96 0.2

Reuters/HKEX

CNH index

Dollar index 91.338 91.26 0.1

*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 2% from official midpoint rate it sets each

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.4802 -0.01%

*

Offshore 6.6577 -2.53%

non-deliverable

forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.

.

($1 = 6.4797 Chinese yuan)

(Reporting by Winni Zhou and Andrew Galbraith; editing by

Richard Pullin)