China’s yuan weakens on strong corporate dollar demand as greenback tumbles

SHANGHAI, June 6 — The yuan eased today as companies rushed to buy dollars after a disappointing job report cast doubt on a possible US interest rate rise in June, pushing the greenback to multi-month lows.

“The prices today were really good for our corporate clients, given that the yuan depreciated 1.6 per cent in May,” said a trader at a Chinese commercial bank.

The People’s Bank of China set the midpoint rate at 6.5497 per dollar prior to the market open, 0.5 per cent firmer than the previous fix of 6.5793.

Some traders said today’s fix was much weaker than their estimates which were around 6.53.

“It seems to me that the Chinese authorities still prefer to kick in a weakening bias in its currency,” wrote Zhou Hao, senior EM economist at Commerzbank AG in Singapore, in a research note to clients.

Spot yuan opened at 6.5550 per dollar and was changing hands at 6.5643 at midday, easing 0.2 per cent from the previous close. Traders said the central bank was believed to have stayed on the sidelines despite robust dollar demand from corporate clients.

“The divergence between market prices and the midpoint says something about the imperfection of the midpoint fixing mechanism,” said one trader from another Chinese commercial bank.

The Chinese currency firmed about 0.5 per cent to close at 6.5515 in the domestic market’s late night trade on Friday as the dollar index plunged 1.6 per cent.

Still, the international community sees some progress in China’s reform towards a more market-oriented exchange rate regime.

US Treasury Secretary Jack Lew said on Friday that China has largely been keeping its G20 commitments to avoid competitive currency devaluations, adding that its action in recent months to spend reserves to support the yuan have been consistent with those commitments.

The latest China Foreign Exchange Trade System (CFETS) data showed that the index for the yuan’s value based on the market’s trade-weighted basket stood at 97.00 last week, the lowest since the week that ended May 13.

The offshore yuan was trading only 0.01 per cent softer than the onshore spot at 6.5649 per dollar.

Traders are also awaiting a flurry of May economic data in coming weeks, with foreign exchange reserves possibly out as early as Tuesday and trade on Wednesday.

China’s forex reserves likely fell US$20 billion to US$3.2 trillion (RM81.659 billion to RM13.065 trillion) in May, after two months of marginal gains, but traders believe capital outflows remain largely in check, a Reuters poll showed. — Reuters 

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