Yuan Dips As Weak China Data And Dollar Demand Hit Currency

China’s currency, the yuan, fell slightly against the U.S. dollar on Monday. This drop happened because of weaker-than-expected economic data and strong demand for U.S. dollars by Chinese companies.

According to new reports, China’s retail sales (which show how much people are buying) grew by 5.1% in April, which is less than March’s 5.9% and below the forecast of 5.5%. This suggests that China’s economy is not growing as fast as hoped. Meanwhile, home prices stayed flat, which also shows weakness in the real estate market, despite government efforts to support it.

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Barclays analysts said that even though the recent trade truce between the U.S. and China has helped calm things down, China still faces economic challenges. The U.S. and China had agreed to reduce tariffs placed on each other’s goods, which earlier helped the yuan rise to a six-month high.

By early Monday, the onshore yuan (used in mainland China) fell 0.08% to 7.2159 per dollar, while the offshore yuan (used outside mainland China) dropped 0.04% to 7.2163.

The fall in the yuan also came after Moody’s cut the U.S. government’s credit rating, causing a brief dip in the dollar. This made some Chinese companies rush to buy cheaper dollars—especially those listed in Hong Kong who need to pay dividends to overseas investors between May and August.

Before markets opened, the People’s Bank of China (PBOC) set the daily reference rate for the yuan at 7.1916 per dollar, which was stronger than expected and the best level since early April.

Barclays noted that the difference between the official rate and the market rate has become smaller, showing no major stress in the currency market. It seems the PBOC is comfortable keeping the yuan around 7.20 for now.

Christopher Wong from OCBC Bank said that keeping the yuan stable is important for China. If the yuan gets too strong too quickly, exporters might rush to sell dollars, causing more currency swings, which the government wants to avoid.

At 0342 GMT: