China’s yuan flat as grim industrial profit data offsets reopening optimism

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SHANGHAI — China’s yuan was roughly

flat versus the dollar on Tuesday in thin trading, as weak

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industrial profit data offset optimism over the country’s steps

to reduce COVID-19 curbs and reopen the economy.

The onshore yuan rose as much 0.28% to a near

two-week high of 6.9434 per dollar in early morning trade, after

China’s central bank set a firmer midpoint rate.

But the Chinese currency gave up all the gains by the lunch

break, trading around 6.9620 at midday.

The yuan was initially supported by news that China will

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stop requiring inbound travelers to go into quarantine starting

from Jan. 8, representing a major step towards easing COVID

curbs on its borders, which have been largely shut since 2020.

China’s health authority also said late on Monday that the

country’s management of COVID will be downgraded to the less

strict Category B from the current top-level Category A.

But the upbeat mood was soon curbed by the latest data

showing profits at China’s industrial firms contracted further

in the January-November period, when strict COVID-related

restrictions disrupted factory activity and supply chains.

Industrial profits fell 3.6% during the first 11 months of

the year to 7.7 trillion yuan ($1.11 trillion). That compares

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with a year-on-year drop of 3.0% for January-October.

The data served as a reminder to traders that China’s

economy is still expected to struggle over the winter months as

much of the population becomes infected with coronavirus and

unable to work while recovering.

In its 2023 outlook report, Chasing Securities said that an

expected economic growth of 5.1% for China next year would

provide a solid foundation for the yuan, but conditions are not

ripe for an appreciation cycle for the Chinese currency.

The brokerage expects the yuan to fluctuate against the

dollar next year.

The yuan market at 3:33AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint

0.40%

6.9546 6.9825

Spot yuan

0.00%

6.9635 6.9634

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Divergence from

midpoint*

0.13%

Spot change YTD

-8.74%

Spot change since 2005

revaluation 18.86%

*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

* -0.08%

6.9692

Offshore

non-deliverable 2.23%

forwards 6.8031

**

*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 Kenneth Maxwell)