China’s Yuan Falls Despite Gains Across Asian Markets

On Tuesday, the Chinese yuan experienced a decline against the dollar, diverging from the general upward trend seen in other Asian currencies. This occurred despite a broader weakening of the greenback, influenced by factors such as foreign dividend payments and ongoing economic concerns.

Before the markets opened, the People’s Bank of China set the daily midpoint rate for the yuan at 7.1083 per US dollar, marking its strongest position since May 22. This rate is central to the managed floating exchange rate system that allows the yuan to fluctuate within a 2% range above or below the midpoint.

In the spot market, the onshore yuan started the day at 7.2400 per dollar. By midday, it had weakened to 7.2456, showing a slight decrease of 43 pips compared to the previous session’s close and standing 1.93% weaker than the midpoint.

Despite recent policy efforts to stimulate the property market, these measures have not managed to sustain capital inflows, according to analysts. HSBC noted that while there have been short-lived increases in equity inflows due to policy changes favoring property, these have not been maintained. On the other hand, there has been a more consistent outflow of funds due to onshore demand for foreign exchange and investments in offshore equities through the southbound trading link.

Additionally, the Chinese blue-chip CSI 300 index has shown signs of weakening after initially rebounding from five-year lows in February. This suggests investor fatigue and uncertainty regarding the effectiveness of the government’s support measures for the market.

Another factor contributing to the yuan’s decline is the seasonal demand for foreign currency by overseas-listed Chinese companies needing to cover dividend payouts. This demand typically leads to selling of the yuan in exchange for foreign currencies.

Market watchers are now looking forward to upcoming U.S. economic indicators, including the ISM services PMI and nonfarm payrolls data, which will provide further insights into the potential adjustments in U.S. interest rates.

For the year, the yuan has fallen by 2.1%, affected by its relatively low yields compared to other currencies and the divergent monetary policies between China and other major economies. Meanwhile, the global dollar index has seen a slight decrease, dropping to 104.08 from 104.14. The offshore yuan is also showing a modest disparity from its onshore counterpart, trading at 7.2573 per dollar, which is 0.16% weaker.