China took steps to slow a decline in the yuan for a fourth time this week, as its weakness intensified on souring sentiment toward the world’s second-largest economy.
The central bank set its so-called fixing for the managed currency at a stronger-than-expected level on Friday, after the offshore yuan extended a seven-month low. The move came after reports that regulators have stepped up scrutiny of currency trading and cross-border capital flows, in a bid to stabilize the yuan.
“It goes hand in hand with the macro fundamentals of the Chinese economy, so it will be very hard to reverse the trend but what they can do is try to slow down the pace of weakness,” Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp, said on Bloomberg Radio.
Officials appear to be increasingly uncomfortable with the slide in the yuan, which has dropped about 2% this month against the dollar and is one of Asia’s worst performers. The currency is being weighed down by China’s disappointing economic recovery, a lack of strong stimulus from Beijing and bets that the US will keep hiking rates amid resilient data.
China’s manufacturing Purchasing Managers Index for June came in at 49, matching the median forecast in a Bloomberg survey with economists. It suggested that the sector was still in contraction.
Onshore yuan weakened 0.1% to 7.2559 as of 3:16 p.m. local time, while the offshore unit was little changed. Some state-owned banks offloaded dollars near the level of 7.26, a move that was soon followed by selling from other market participants, according to traders who asked not to be identified.
“The People’s Bank of China wants to make sure the movements in the yuan is more gradual but we don’t think they want to intervene forcefully to reverse the trend,” said Redmond Wong, a strategist at Saxo Capital Markets HK Ltd. “The PMIs are in line, which may be a relief for investors as people were worried about the worse.”
Friday’s fixing came in at 7.2258 per dollar, 227 pips stronger than the average estimate in a Bloomberg survey. The rate limits the yuan’s moves by 2% on either side.
--With assistance from Ran Li.
(Adds trader quote and prices in the sixth paragraph.)
