China’s yuan slips, traders wary of reopening risks
SHANGHAI — China’s yuan weakened on
Tuesday as the dollar gained broadly, with sentiment also curbed
by growing caution that the recovery in the world’s
second-biggest economy could be gradual and bumpy even as
Beijing eases strict COVID policies.
Despite the recent rebound triggered by economic reopening
hopes, the yuan will remain under depreciation pressure next
year, some analysts argue.
The spot yuan slipped 0.2% to 6.9738 per dollar
around midday, despite the central bank setting the guidance
rate at a two-month high.
Still, the Chinese currency has jumped nearly 5% against the
dollar since November on expectations of an eventual reopening
of China’s economy.
Maybank attributed the yuan’s weakness on Tuesday to an
overnight rebound in the U.S. dollar triggered by unexpectedly
strong economic data.
U.S. data, including October factory orders and durable
goods orders “surprised to the upside and halted the momentum of
USD bears.” The dollar index bounced 0.7% overnight from
a five-month low.
Sentiment was also eroded by growing concerns over the risks
from eased COVID curbs in China.
“Ending zero-COVID is encouraging and should be quite
positive for markets, but we caution that the road to reopening
may be gradual, painful and bumpy,” Normua said in a note to
“China does not appear to be well prepared for a massive
wave of COVID infections, and it may have to pay for its
procrastination on embracing a ‘living with COVID’ approach.”
Bart Wakabayashi, branch manager at State Street in Tokyo,
said the past week has been dominated by expectations of some
relief from the zero-COVID policy, which pose broad implications
for global trade and supply chain issues.
“I think there’s been a lot of speculative yuan buying for
those reasons, and the market will continue to be driven by
whatever media headlines we get on variations of China’s
CIB Research analysts defined the recent yuan strength as a
rebound, rather than trend reversal, arguing that sustained
strength requires China’s shift toward monetary tightening, and
a sharp drop in U.S. interest rates.
The yuan is under depreciation pressure over the long term,
so “don’t be in a hurry closing dollar exposure around the
Chinese New Year,” they said in a note to clients.
The yuan market at 3:34AM GMT:
Item Current Previous Change
Spot change YTD
Spot change since 2005
*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
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan
non-deliverable 6.809 2.43%
*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 Shri Navaratnam)
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