The yuan came off one-week highs made after Chinese factory activity surveys raised hopes of a faster-than-expected economic recovery, and the yuan lost most of its gains by midday on Wednesday as traders baulked at testing the 7.05 per dollar level.
Official and private surveys, released on Tuesday and Wednesday, showed factory activity grew at a faster clip in June after the government lifted coronavirus lockdown measures and ramped up support steps.
The spot yuan
Several traders attributed the yuan's retreat to market participants' reluctance to break recent trading ranges.
The yuan showed little reaction to the passage of new national security legislation for Hong Kong on Wednesday, said a trader at a Chinese bank.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate
Separately, the PBOC's decision to cut the re-discount and re-lending rates by 25 basis points as of July 1 also failed to lift the yuan, traders said.
"We reckon China's monetary policy will likely show a trend of marginal tightening in the months ahead as the PBOC has stressed monetary policy should take into account 'sustainable development', unless the Chinese economy loses momentum once again late this year," said Gao Qi, FX strategist at Scotiabank.
The global dollar index <=USD> rose to 97.411 at midday from the previous close of 97.393.
The offshore yuan
The yuan market at 0400 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 7.071 7.0795 0.12%
Spot yuan 7.0652 7.065 0.00%
Divergence from -0.08%
midpoint*
Spot change YTD -1.44%
Spot change since 2005 17.14%
revaluation
Key indexes:
Item Current Previous Change
Thomson 92.13 92.15 0.0
Reuters/HKEX
CNH index
Dollar index 97.411 97.393 0.0
*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 7.0649 0.00%
*
Offshore 7.1782 -1.49%
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 Winni Zhou and Andrew Galbraith; Editing by Simon Cameron-Moore)