Yuan hits 4-1/2 month low despite state bank intervention, strong guidance

Chinese Yuan: China's yuan on Tuesday declined to a 4-1/2 month low, as the strength of the dollar outweighed efforts by state-owned banks to sell dollars and robust official guidance aimed at stabilising the local currency.

Major state-owned banks in China were observed selling dollars for yuan in onshore markets, in an apparent bid to prevent further depreciation of the Chinese currency.

Despite the People's Bank of China setting a strong midpoint rate, the yuan dropped to its lowest level since November 2023, reaching 7.2349 against the dollar.

The central bank's midpoint rate was set at 7.0957 per dollar, notably stronger than market estimates, marking the largest discrepancy since October 2023.

Opening at 7.2294 per dollar, the spot yuan weakened to 7.2347 by midday, approximately 1.96 per cent away from the midpoint.

The PBOC has consistently provided stronger-than-expected guidance since early last year, indicating efforts to maintain stability in the yuan and prevent significant depreciation.

Monday's data revealed growth in US manufacturing for the first time in 1-1/2 years, reinforcing the dollar's strength and diminishing the likelihood of a June start to the Federal Reserve's rate-cut cycle.

The dollar index climbed to a more than 4-month high, reflecting its dominance in the foreign exchange market.

According to Reuters' estimates, China's trade-weighted CFETS yuan basket index rose to its highest level since April 2023, reaching 99.83.

In offshore trading, the yuan traded weaker than the onshore spot, reaching 7.2614 per dollar.

(With Reuters Inputs)