China's yuan rebounds from 7-1/2-month low after weaker-than-expected US data
SHANGHAI, July 4 (Reuters) -China's yuan rebounded on Thursday from a 7-1/2-month low against the dollar hit a day earlier, thanks to a slew of weaker-than-expected U.S. economic data that raised investor bets on Federal Reserve interest rate cuts later this year.
At 0242 GMT, the onshore yuan CNY=CFXS traded at 7.2710 per dollar, up from a low of 7.2737 hit on Wednesday, which was the weakest level since Nov. 14, 2023.
Monetary policy divergence has been one of the key factors weighing down the Chinese currency over the past few years, as Beijing hinted at more easing measures to support the world's second-largest economy.
However, the gain in the yuan on Thursday was rather limited as the strength was offset by a weakening Japanese yen and seasonal corporate demand for foreign exchange, currency traders said.
Overseas-listed Chinese companies typically have to make dividend payouts to their offshore shareholders between May and August.
Under the influence of multiple unfavourable factors such as a strong U.S. dollar, continued depreciation of the yen and dividend payouts, the yuan will continue to face downward pressure, China Construction Bank said in a note.
The lender added that measures to stabilise the currency should limit the magnitude of yuan's weakness.
The yuan has lost 2.3% against the greenback so far this year. It has been under pressure since early 2023 as domestic woes around a moribund property sector, anaemic consumption and falling yields drive capital flows out of yuan, and foreign investors stay away from China's struggling stock market.
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 7.1305 per dollar. That was 1,351 pips firmer than Reuters' estimate.
The offshore yuan traded at 7.298 yuan per dollar CNH=, up about 0.09% in Asian trade.
Separately, market participants were anxiously monitoring developments around the central bank's potential treasury bond trading in the secondary market after the PBOC said this week that it would borrow treasury bonds from some primary dealers.
The PBOC's selling of treasury bonds to stabilise long-term rates is "supportive of the yuan but the currency direction remains heavily influenced by Fed's monetary policy," UOB economist Ho Woei Chen said in a note.
"It is thus not to be seen as a liquidity tightening move as PBOC's monetary policy remains biased towards easing in order to boost the economic recovery prospects."
Sources told Reuters that China's finance ministry on Wednesday asked underwriters of this week's 30-year treasury auction to resubmit their bids taking into account the central bank's new bond borrowing plans.
Key onshore vs offshore levels:
Overnight dollar/yuan swap onshore -8.00 pips vs. offshore -8.00
Three-month SHIBOR SHIBOR= 1.9 % vs. 3-month CNH HIBOR 3 %
LEVELS AT 0242 GMT
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan <CNY=CFXS | 7.271 | -0.01 | -2.33 | 7.2679 | 7.2716 |
Offshore yuan spot CNH=D3 | 7.2981 | 0.09 | -2.37 | 7.2965 | 7.3025 |
Reporting by Shanghai Newsroom; Editing by Jamie Freed
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