China’s yuan weakens as U.S. dollar gains on sustained inflation outlook
HONG KONG — China’s yuan weakened on
Wednesday, as the U.S. dollar strengthened on expectations of a
sustained inflationary trend fueled by a prospective surge of
outbound Chinese travelers.
China said on Tuesday it would drop its quarantine rules for
inbound travelers starting January 8, largely reopening a border
that has been locked up for almost three years.
Searches for cross-border destinations on travel platforms
have since jumped tenfold, because the rule change will make
outbound tourism practicable. Since 2020, few Chinese have
wanted to endure quarantine just for a foreign holiday.
“The surge expected for outbound tourists from China has
fueled an expectation that their consumption abroad will also
make inflation in the US and Europe more entrenched, sending
their currencies stronger on Tuesday,” said Ken Cheung, chief
Asian FX strategist at Mizuho Bank.
The spot yuan opened at 6.9610 per dollar and was
changing hands at 6.9747 at midday, 146 pips weaker the previous
late session close and 0.09% away from the midpoint.
The People’s Bank of China set the midpoint rate
at 6.9681 per U.S. dollar prior to market open, weaker than the
previous fix, 6.9546. The spot rate is currently allowed to
trade 2% above or below the official fixing on any given day.
The global dollar index rose to 104.266 from the
previous close of 104.179. Against the yen, the dollar reached a
more than one-week high, at 133.685 yen.
The removal of the quarantine requirement, following earlier
moves, amounts to almost complete reopening of the economy
earlier than expected, some analysts said.
Goldman Sachs said in a Tuesday research note that daily new
cases in China may peak in late December or in January, citing
experience from Hong Kong and Taiwan.
It forecasts GDP growth for the full year of 2023 at 5.2%.
China’s economy, the world’s second-largest, is on track to miss
its 2022 annual growth target of around 5.5%, analysts have
“We maintain our view that China reopening is positive for
(onshore yuan), and believe improved growth expectations in 2023
might outweigh unfavorable factors such as deterioration in
goods and service trade balances,” Goldman Sachs said.
Goldman Sachs maintains its USD/CNY 12-month forecast at
The offshore yuan was trading 0.08% stronger than
the onshore spot at 6.9694 per dollar.
Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan’s value, traded
at 6.8067, 2.37% away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot
The yuan market at 3:28AM GMT:
Item Current Previous Change
Spot change YTD
Spot change since 2005
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan
*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 Georgina Lee; Editing by Bradley Perrett)
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