China's yuan largely steady after robust manufacturing data
SHANGHAI, July 1 (Reuters) -China's yuan remained largely steady against the U.S. dollar on Monday after a private sector survey showed China's manufacturing activity grew at the fastest pace in more than three years.
The Chinese currency also stabilised due to a weakened U.S. dollar after data showed inflation in the world's largest economy subsided last month, cementing expectations the Federal Reserve will start cutting interest rates this year.
By 0312 GMT, the yuan CNY=CFXS was 0.01% lower at 7.2678 to the dollar after trading in a range of 7.2665 to 7.2685.
However, the yuan still hovered around seven-month lows and was down 2.3% for this year.
It has been under pressure since early 2023 as a prolonged property crisis, anaemic consumption and falling yields drive capital flows out of China, and foreign investors stay away from its struggling stock market.
Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1265 per dollar, 1,293 pips firmer than a Reuters' estimate.
The spot yuan CNY=CFXS opened at 7.2665 per dollar and was last trading 19 pips lower than the previous late session close and 1.98% weaker than the midpoint.
The Caixin/S&P Global manufacturing PMI rose to 51.8 in June from 51.7 in the previous month, marking the fastest clip since May 2021 and surpassing analysts' forecasts of 51.2, indicating the health of the sector remained robust.
However, the figure contrasted with an official PMI released on Sunday that showed a decline in manufacturing activity, keeping alive calls for further stimulus as the economy struggles to get back on its feet.
China's investment bank CICC said in a note that the yuan will face continued pressure against the U.S. dollar in the near term and expected a mild depreciation of the domestic currency.
"However, the policy to maintain the yuan forex rate will be strengthened as the Third Plenum comes," CICC added.
The meeting of the Chinese Communist Party's central committee in July will focus on deepening reforms and promoting the country's modernisation. Investors expect it will provide a better sense of the leadership's medium-term reform priorities.
In the U.S., data showed the personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, was unchanged last month, and followed an unrevised 0.3% gain in April.
Investors will now focus on next week's U.S. nonfarm payrolls report, in which Wall Street economists are forecasting a gain of 195,000 in June, compared with 272,000 in May.
China's central bank has been gradually lowering its daily yuan official guidance, well within market projections but with a bias suggesting it is allowing some depreciation, traders and analysts said.
Based on Monday's official guidance, the yuan is allowed to drop as far as 7.2690.
The offshore yuan traded at 7.2998 yuan per dollar CNH=, up about 0.01% in Asian trade.
The dollar's six-currency index =USD was 0.123% lower at 105.59.
Key onshore vs offshore levels:
Overnight dollar/yuan swap onshore -7.70 pips
Three-month SHIBOR SHIBOR= 1.9% vs. 3-month CNH HIBOR 3%
LEVELS AT 03:11 GMT GMT
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan <CNY=CFXS | 7.2678 | -0.01 | -2.28 | 7.2665 | 7.2685 |
Offshore yuan spot CNH=D3 | 7.2994 | 0.01 | -2.39 | 7.2975 | 7.3 |
Reporting by Shanghai Newsroom; Editing by Sonali Paul
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