China’s yuan dips as fresh COVID outbreaks offset reopening optimism

China’s yuan dips as fresh COVID outbreaks offset reopening optimism


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SHANGHAI — China’s yuan slightly

weakened against the dollar on Tuesday, as sharply escalating

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COVID-19 cases and unexpectedly weak trade data offset optimism

about an eventual economic reopening that had fueled wild

currency swings last week.

In the onshore market, the yuan was changing hands at 7.2381

per dollar at midday, 0.1% weaker than previous late session

close, despite the People’s Bank of China setting the midpoint

rate at a one-week high of 7.215 per dollar.

Meanwhile, the dollar index remained soft, trading at

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around 110, amid bets that possible Republican gains in the U.S.

midterm elections could lead to greater pushback on larger

fiscal spending, potentially weighting on the greenback.

In China, COVID-19 cases sharply escalated in Guangzhou and

other major Chinese cities, official data showed on Tuesday,

with the global manufacturing hub fighting its worst flare-up

ever.

“Signs of rising COVID cases in China” and potentially

elevated U.S. October inflation data on Thursday are headwinds

to risk-on mood, Maybank analysts said in a note to clients.

But the market continues to seize on incremental COVID

policy adjustments as evidence that China is preparing for an

eventual economic reopening. Such bets triggered the biggest

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jump ever in offshore yuan last week.

“Just as markets could continue to speculate on the end of

the Fed tightening cycle, investors could also be betting on

what should be the inevitable end of China’s COVID-zero policy,”

Maybank said.

“Such plays could continue to generate wild swings.”

Also curbing optimism toward the yuan, is trade data

released on Monday that showed both China’s exports and imports

unexpectedly contracted in October – the first simultaneous

slump since May 2020.

In an article published in local media on Tuesday, Guan Tao,

global chief economist at BOC International, and a former forex

regulator, said that “the key to stabilizing exchange rates, is

to improve economic prospects, and boost market confidence.”

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China has experienced a fresh wave of strong capital

outflows this year, and increased yuan flexibility helped

cushion such impacts and safeguard China’s economic and

financial stability, he said.

The yuan market at 4:45AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint

0.20%

7.215 7.2292

Spot yuan

7.23 -0.17%

7.2421

Divergence from

midpoint*

0.38%

Spot change YTD

-12.25%

Spot change since 2005

revaluation 14.28%

Key indexes:

Item Current Previous Change

Thomson

Reuters/HKEX 0.0

CNH index

Dollar index

110.314 0.2

110.12

*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 percent from official midpoint rate it sets each

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan

* -0.03%

7.2445

Offshore

non-deliverable 2.45%

forwards 7.0422

**

*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 Shanghai newsroom; Editing by Stephen Coates)

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