The yuan eased against the dollar on Monday as weak manufacturing data added to worries about the risk of further capital outflows, and after the central bank set a weaker midpoint.
China’s manufacturing activity unexpectedly contracted at its fastest pace in almost three-and-a-half years in January, an official survey showed, suggesting the economy is off to a weak start in 2016 and adding to the case for near-term stimulus that could put further additional pressure on the yuan.
“The market did not turn violent on hearing about the PMI,’’ said a trader at a local commercial bank.
“The central bank still guides the market fairly well, keeping it stable.’’
Yuan midpoint rate
The People’s Bank of China set the midpoint rate at 6.5539 per dollar prior to the market open, 0.04 per cent weaker than the previous fix of 6.5516.
The spot market opened at 6.5761 per dollar and was changing hands at 6.5788 at midday, 0.03 per cent softer than the previous close.
Exchange rate index
The trade-weighted yuan exchange rate index, issued every Friday by the market, the China Foreign Exchange Trade System (CFETS), fell 0.7 per cent last week, making its latest reading 100.15.
In Monday’s open market operations, the central bank injected 10 billion yuan ($1.52 billion) into the money markets through 28-day reverse repos.
The PBOC has repeatedly injected short-term funds into the money market over the past two weeks, hoping to delay expected cuts in banks’ required reserve ratios, which would increase long-term base money in the system and so add pressure on the yuan to depreciate further, a view that authorities are battling to discourage.
On Monday, the offshore yuan was trading 0.36 per cent weaker than the onshore spot at 6.6026 per dollar. The onshore yuan strengthened 0.6 per cent against the euro at 7.1363. It also firmed 0.4 per cent against the Japanese yen, hovering at 5.4252 to 100 yen.