China's yuan steady as traders await news from plenum

China's yuan was little changed against the US dollar on Wednesday as traders awaited policy news from a key leadership gathering in Beijing that is expected to end on Thursday. Worries about slower growth in China's economy in the second quarter were offset by a weakened dollar as traders bet on US rate cuts as early as September. 

By 0334 GMT, the yuan was unchanged at 7.2688 to the dollar after trading in a range of 7.2658 to 7.2691. Prior to the market opening, the People's Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2 per cent band, at 7.1318 per dollar, 1,312 pips firmer than a Reuters' estimate. 

The spot yuan opened at 7.2669 per dollar and was last trading 26 pips lower than the previous late session close and 1.92 per cent weaker than the midpoint. The yuan has been mostly unchanged against the dollar this month but has eased 2.3 per cent this year. It has been under pressure since early 2023 as a protracted property crisis, anaemic consumption and falling yields drive capital flows out of China, and foreign investors stay away from its struggling stock market. Data on Monday showed the world's second-largest economy grew much slower than expected in the second quarter as a protracted property downturn and worries over jobs knocked the wind out of a fragile recovery. 

With business and consumer sentiment near record lows, the Communist party plenum will seek to inject confidence in the economy. However, conflicting goals such as boosting growth while cutting debt may mean little progress toward implementing change. "The offshore renminbi (yuan) has been underperforming the euro and the yen in the past few days. Part of it is due to China's poor Q2 and June economic data out on Monday, and part of it could be a manifestation of the 'Trump trade'," said Alvin T. Tan, head of Asia FX strategy at RBC Capital Markets. "I expect USD/CNY (dollar yuan pair) to retest last year's 7.35 high in coming months." 

The dollar was mixed on Wednesday after a modest but short-lived boost following better-than-expected US retail sales data, as traders focused on the prospect of Federal Reserve rate cuts. While the dollar initially got a lift on the back of the data, it failed to sustain its gains as the report did little to alter market bets for a Fed cut in September, which is now fully priced in. Based on Wednesday's official guidance, the yuan is allowed to drop as far as 7.2744. The central bank has been gradually lowering its daily yuan official guidance, well within market projections but with a bias suggesting it is allowing some depreciation, traders and analysts said. 

The offshore yuan traded at 7.2858 yuan per dollar, up about 0.04 per cent in Asian trade. The dollar index languished near a one-month low and last stood at 104.22.