China’s yuan drops on firmer US dollar, weak industrial profit data

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HONG KONG — China’s yuan weakened on

Monday as the US dollar firmed and after data showed a sharp

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decline in China’s industrial profits for January and February.

The yuan dropped to its lowest point since last Wednesday in

early morning trade. The decline was in line with other Asian

currencies after the US dollar extended gains made on comments

by US regulators that the banking sector remained “sound and

resilient.”

Profits for China’s industrial firms shrank 22.9% in the

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first two months this year from a year ago, as the factory

sector struggles to claw its way out of the slump caused by

COVID-related disruptions.

That followed a 4% drop in industrial profits for 2022 and

suggests an uneven path to recovery for the economy. Retail

sales for January-February showed stronger growth momentum.

“While the industrial profits data are quite negative, the

yuan was more dragged down by the dollar’s strength,” said Alvin

Tan, head of Asia currency strategy at RBC Capital Markets.

“Historically, the market reacts more to economic data such

as the purchasing managers’ index” which is due out Friday, he

said.

After opening at 6.8730 per dollar, the spot yuan was

Changing hands at 6.8784 at midday, 105 pips weaker than the

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previous late session close and 0.10% away from the midpoint.

The People’s Bank of China set the midpoint rate

at 6.8714 per US dollar prior to the market open, weaker than

the previous fix of 6.8374.

The spot rate is currently allowed to trade with a range of 2%

above or below the official fixing on any given day.

The dollar index, which measures the currency against

six rivals, was up 0.01% at 103.000, having gained 0.5% on

Friday.

Investors will be closely watching US gross domestic

product data for the last quarter of 2022 that is due out on

Thursday, while core PCE CPI, the Fed-favored inflation gauge,

is slated for Friday.

Financial stocks experienced sharp moves throughout last

week after the collapse of two US lenders and last weekend’s

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Swiss-government-orchestrated takeover of troubled Credit Suisse

by rival UBS.

“Any sign of further credit stress in the banking sector

could quickly eclipse any signs of economic strength in the US

and continue to contribute to rate cut expectations this year,”

Maybank analysts said in a research note on Monday.

Offshore yuan was trading 0.02% weaker than

onshore spot at 6.8799 per dollar.

The one-year forward value for offshore yuan

traded at 6.729 per dollar, indicating appreciation of roughly

2.24% within 12 months.

The yuan market at 2:51AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint

-0.49%

6.8714 6.8374

Spot yuan

-0.15%

6.8784 6.8679

Divergence from

midpoint*

0.10%

Spot change YTD

0.31%

Spot change since 2005

revaluation 20.33%

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan

* -0.02%

6.8799

Offshore

non-deliverable 2.12%

forwards 6.7285

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

Since non-deliverable forwards are settled against the midpoint.

.

(Reporting by Georgina Lee; Editing by Edwina Gibbs)