China’s yuan rebounds from 1-month low, set for marginal monthly loss

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    SHANGHAI, Sept 30 (Businesshala) - China's yuan rebounded on
Thursday from a one-month low against a firmer dollar hit a day
earlier, as higher demand for the local currency outperformed
disappointing economic data.
    For the month, the yuan looked set for a marginal loss.
    Currency traders said the broad strength in the greenback,
which was underpinned by higher expectations for Federal Reserve
tapering from November and a possible interest rate hike in the
United States in late 2022, prompted profit-taking and led some
investors to rush to convert their dollars into the Chinese
unit.
    Banks also shored up their yuan positions ahead of an
upcoming long holiday and various administrative requirements on
the last trading day of the quarter. 
    Chinese markets will be closed for the week-long National
Day holiday starting on Friday.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.4854 per dollar,
192 pips or 0.3% weaker than the previous fix of 6.4662, the
weakest since Aug. 27.
    In the spot market, the onshore yuan rebounded
from a one-month low of 6.48 per dollar hit on Wednesday. By
midday, the spot price was changing hands at 6.4680, 35 pips
firmer than the previous late session close.
    If the yuan finishes the late night session at the midday
level, it would have dipped 0.1% against the dollar for the
month.
    But signs that the economic recovery was losing momentum
remained a market concern, said a trader at a foreign bank,
adding the recent power crunch across the country could add 
pressure on the broader economy.
    Official data showed that China's factory activity
unexpectedly shrank in September due to wider curbs on
electricity use and elevated input prices, though services
returned to expansion as COVID-19 outbreaks receded, offering
some relief to the world's second-biggest economy.
    "The disappointing manufacturing PMI suggested that the
downside risk for China economy has been increasing, and the
downgrade on China growth outlook could weigh on the RMB
exchange rate subsequently," said Ken Cheung, chief Asian FX
strategist at Mizuho Bank. 
    Some market analysts and traders believe stimulus is still
needed to arrest the slowdown.
    "The next reserve requirement ratio (RRR) cut may be around
the corner and a 50 basis points (bps) cut is widely expected,"
analysts at Maybank said in a note.
    By midday, the global dollar index stood at 94.285,
while the offshore yuan was trading at 6.4726 per
dollar. 
    
    The yuan market at 0409 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4854   6.4662    -0.30%
                                       
 Spot yuan          6.468    6.4715    0.05%
                                       
 Divergence from    -0.27%             
 midpoint*                             
 Spot change YTD                       0.93%
 Spot change since 2005                27.96%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         99.73       99.47     0.3
 Businesshala/HKEX                          
 CNH index                             
 Dollar index    94.285      94.344    -0.1
 
    
    
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.4726    -0.07%
        *                        
 Offshore              6.6508    -2.49%
 non-deliverable                 
 forwards                        
               **                
 
*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 the Shanghai Newsroom; Editing by Kim Coghill)
  
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