China's yuan drops on weak fix and slower pace of export growth
SHANGHAI, Aug 7 (Reuters) -The yuan slipped against the U.S. dollar on Wednesday after official guidance was set at its weakest level in more than eight months and growth in Chinese exports for July was weaker than expected.
Also putting pressure on the yuan was further strength for the U.S. dollar after the Bank of Japan's influential deputy governor said on Wednesday that the central bank won't raise rates while markets are unstable.
The Japanese currency has surged against the dollar as yen-funded carry trades have been aggressively unwound after the BOJ raised rates and took a hawkish stance at the same time as U.S. recession fears have grown.
The yuan, which has also been a preferred currency to fund carry trades, jumped in tandem with the yen on Monday, hitting a seven-month high against the dollar.
Goldman Sachs analysts said, however, that the recent yuan strength was unlikely to last.
"We believe the yuan strength amid a weaker dollar and carry unwinds would unlikely continue in the medium term," they wrote in a note to clients on Wednesday.
The yuan was likely to weaken given "still-elevated" returns for carry trades funded by the Chinese currency, weak domestic demand and expectations that China's central bank will continue to ease monetary policy, they added.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1386 per dollar, its weakest since Nov. 2023. It was 95 pips firmer than a Reuters estimate.
China's exports climbed 7.0% in July from a year earlier, a slower pace of growth than expected and the weakest since April, although imports rose at a robust 7.2% rate.
The dollar's six-currency index =USD was 0.185% higher at 103.17.
In the short term, the Federal Reserve will likely support the dollar by pushing back against the market's aggressive bets for 100 bps of cuts for the rest of the year, said Philip Wee, senior FX strategist at DBS.
Spot yuan CNY=CFXS opened at 7.1662 per dollar and was last trading at 7.1802 as of 0236 GMT, 252 pips lower than the previous late session close. It was 0.58% weaker than the midpoint.
Offshore yuan traded at 7.1815 yuan per dollar CNH=D3, down about 0.3% in Asian trade.
The yuan is up 0.6% against the dollar this month, but 1.1% weaker this year as economic growth in China struggles to gain momentum.
Key onshore vs offshore levels:
• Overnight dollar/yuan swap onshore -8.35 pips vs. offshore -8.35
• Three-month SHIBOR SHIBOR= 1.8 % vs. 3-month CNH HIBOR 2.5 %
LEVELS AT 02:36 GMT
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan <CNY=CFXS | 7.1802 | -0.32 | -1.09 | 7.1662 | 7.1845 |
Offshore yuan spot CNH=D3 | 7.1821 | -0.3 | -0.78 | 7.1589 | 7.1864 |
Reporting by Shanghai Newsroom; Editing by Edwina Gibbs
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