Tuesday, March 19

China’s yuan gains, shrugs off weak factory survey as hopes grow for easing in COVID rules


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HONG KONG — China’s yuan edged up

against the greenback on Wednesday, as traders shrugged off weak

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factory activity data and remained optimistic that the

government would relax some of the strict measures used to

pursue its zero-COVID strategy.

China’s national health officials said on Tuesday that

authorities would respond to public’s “urgent concerns” and

become more flexible in the implementation of anti-COVID

restrictions.

Hopes for a further relaxation of the rules were fueled by a

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Bloomberg report that the central Chinese city of Zhengzhou,

home of Apple Inc.’s largest manufacturing site, is

Lifting a lockdown on its main urban areas starting Wednesday.

The report cited the local government’s official WeChat account.

“The reopening process in China will likely resemble a two

step forward, one step back situation, given the high COVID-19

outbreak (numbers) we have right now,” said Alvin Tan, head of

Asia currency strategy at RBC Capital Markets.

The spot yuan at one point firmed to 7.1339 per

dollar, its strongest in six days, after opening at 7.1585.

was changing hands at 7.1416 at midday, 159 pips stronger than

The previous late session close and 0.49% below the midpoint.

The People’s Bank of China set the midpoint rate

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at 7.1769 per dollar prior to market open, firmer than the

previous fix 7.1989.

The spot rate is currently allowed to trade with a range of 2%

above or below the official fixing on any given day, though

There is growing speculation that the PBOC could widen the band

some time in the future.

Economic data released on Wednesday underscored the challenge

China faces revitalizing growth while the government sticks with

Its strict strategy to prevent the spread of COVID-19.

China’s November manufacturing purchasing managers’ index

dropped to 48.2 in November, signaling a contract in factory

activity. It was the lowest reading in seven months and below

analysts’ expectations.

“We expect the offshore yuan to continue weakening gradually

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going forward, as the exchange rate will reflect that China’s

exports have been faltering,” Tan said.

A persistent decline this month in a key yuan index – the

trade-weighted China Foreign Exchange Trade System index

– tracking the onshore yuan against 24 foreign

currencies, has highlighted the drag that weaker exports are

putting on the Chinese currency.

The offshore yuan was trading 0.01% away from the

onshore spot at 7.141 per dollar. It gained over 900 pips in the

previous trading session, before narrowing its gain on

Wednesday.

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 6.9535, 3.21% away from the midpoint.

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One-year NDFs are settled against the midpoint, not the spot

rate.

The global dollar index fell to 106.655 from the

previous close of 106.822.

The yuan market at 4:09AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint

0.31%

7.1769 7.1989

Spot yuan

0.22%

7.1416 7.1575

Divergence from

midpoint*

-0.49%

Spot change YTD

-11.01%

Spot change since 2005

revaluation 15.89%

Key indexes:

Item Current Previous Change

Thomson

Reuters/HKEX 0.0

CNH index

Dollar index

106.655 -0.2

106.822

*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

* 7.141 0.01%

Offshore

non-deliverable 3.21%

forwards 6.9535

**

*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 Simon Cameron-Moore)

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