China's yuan slips as dollar holds near two-week high; weak data weighs

SHANGHAI – China's yuan weakened against the US dollar on Tuesday, as the greenback approached a two-week peak and economic indicators indicated sluggish domestic demand. At the opening bell, the yuan traded at 6.7100 per dollar, later dipping to 6.7104, marking a 19-pip decline from the prior close. The dollar gained ground, nearing a two-week high, propelled by surging oil prices that raised Treasury yields and heightened expectations of an imminent Federal Reserve rate hike.

Analysts at MUFG noted that markets remain driven by significant increases in developed market yields, fears of oil price hikes due to the potential resumption of the Middle East conflict, and apprehensions regarding a substantial slowdown in AI spending. This has led to a more cautious stance on risk sentiment.

China's industrial output accelerated in August, but weak consumption and a worsening investment slump underscore concerns about mounting economic imbalances. Meanwhile, subdued August credit data suggests ample liquidity and low interest rates by year-end, according to China Great Wall Securities analysts. The yuan is expected to maintain a stable-to-slightly firmer trend, given China's substantial trade surplus alongside a record-wide interest rate gap between China and the US. Investors are eagerly awaiting the Federal Reserve's rate decision.

The People's Bank of China set the midpoint rate at 6.7670 per dollar before markets opened, marking a significant strengthening since February 3, 2023, which was 619 pips lower than a Reuters estimate. The spot yuan is permitted to trade within a 2% range around the fixed midpoint daily. The dollar index, tracking the greenback against six currencies, rose by 0.132% to 99.62. The offshore yuan was trading at 6.7112 per dollar, slipping roughly 0.03% in Asian markets.