Yuan Touches 2012 Low as China Data Signal Manufacturing Slump

China’s yuan touched the weakest level in 16 months after a private report showed the nation’s factory output is still contracting.

A preliminary reading for the Purchasing Managers’ Index for manufacturing was at 48.3 in April, up from a final 48 in March, HSBC Holdings Plc and Markit Economics reported today. The figure, which was below the dividing line of between expansion and contraction, matched the median estimate in a Bloomberg News survey of economists.

The yuan closed little changed at 6.2376 per dollar in Shanghai, China Foreign Exchange Trading System prices show. It fell as much as 0.15 percent to 6.2466 earlier today, the weakest level since Dec. 14, 2012. The currency is down 2.9 percent in 2014, the worst performance in Asia, after gaining for a fourth straight year in 2013.

“Although there’s a rebound in the PMI number, it still shows a China slowdown story,” said Bruce Yam, a currency strategist at Sun Hung Kai Forex in Hong Kong. “I’d advise investors to stay away from the yuan. The appreciation trend isn’t going to resume anytime soon and so money is actually looking to leave this asset class rather than piling back in.”

The People’s Bank of China raised the daily fixing by 0.02 percent to 6.1599 per dollar today, the first time it’s strengthened the reference rate in four days. The spot rate was at a 1.25 percent discount to the fixing, within the 2 percent limit.

‘Positive Glimmer’

Today’s manufacturing data didn’t signal a turning point for China’s economy and growth momentum is still weakening, Nomura Holdings Inc. Hong Kong-based economist Zhang Zhiwei wrote in a note today. The pickup in PMI was “a positive glimmer, implying the deceleration of Chinese economy probably has stabilized in April,” according to Jacqueline Rong, an analyst at BNP Paribas SA.

“Undoubtedly the state of the economy remains weak and there is enormous downside pressure,” Beijing-based Rong wrote in a report today.

In the offshore market, the yuan dropped 0.03 percent to 6.2396 per dollar in Hong Kong and earlier touched 6.2472, the weakest since October 2012, data compiled by Bloomberg show. Twelve-month non-deliverable forwards were little changed at 6.2665, a 0.46 percent discount to the Shanghai rate.

One-month implied volatility in the onshore yuan, a gauge of expected exchange-rate swings used to price options, rose 17 basis points, or 0.17 percentage point, to 2.17 percent, according to data compiled by Bloomberg. That’s the highest level since March 31.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey, Anil Varma

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