Tuesday, November 29

China’s yuan weakens ahead of Fed Chair Powell’s testimony


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SHANGHAI — China’s yuan weakened on

Wednesday ahead of Federal Reserve Chair Jerome Powell’s

testimony to Congress later in the day, with traders looking for

further clues on how aggressively the Fed will hike rates at its

July meeting and beyond.

The People’s Bank of China set the midpoint rate

at 6.7109 per dollar prior to the market open, weaker than the

previous fix 6.6851.

In the spot market, the yuan opened at 6.6946 per

dollar and was changing hands at 6.7160 at midday, 250 pips or

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0.37% weaker than the previous late session close.

“Any hawkish deviation from previous communicated messaging

could un-nerve sentiment and send UST yields and USD rising

again,” Maybank analysts said in a note, referring to Powell’s

testimony.

The yuan has stabilized over the past month, following a

slump in April and early May on concerns over the economic

damage from China’s widespread COVID-19 lockdowns and the

fallout from the Russia-Ukraine crisis.

“While there could be some relief for the yuan on signs that

the Covid situation may be under control, the overarching

zero-Covid strategy could continue to hurt the recovery of

private consumption and investment,” Maybank analysts said.

“Gains may be capped in the face of recovery uncertainties,”

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they added, expecting the currency may continue to remain within

the 6.60-6.80 range.

“There is still some depreciation room for the yuan due to

the negative China-US yield spread, and China’s exports are

also slowing with the slowing US PMI,” said Max Luo, Director

of Asset Allocation China at UBS Asset Management.

“In the mid-term, the yuan will gradually depreciate owing

to those two reasons, while the market’s focus is on COVID

recently.”

US President Joe Biden is considering scrapping tariffs on

a range of Chinese goods to curb inflation, but no decision is

likely before next week’s Group of Seven summit, people familiar

with the matter said.

The global dollar index rose to 104.597 from the

previous close of 104.435. The offshore yuan was

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trading at 6.718 per dollar.

The yuan market at 4:37AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.7109 6.6851 -0.38%

Spot yuan 6.716 6.691 -0.37%

Divergence from 0.08%

midpoint*

Spot change YTD -5.38%

Spot change since 2005 23.24%

revaluation

Key indexes:

Item Current Previous Change

Thomson 101.64 101.76 -0.1

Reuters/HKEX

CNH index

Dollar index 104.597 104.435 0.2

*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 6.718 -0.03%

*

Offshore 6.703 0.12%

non-deliverable

forwards

**

*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 Kim Coghill)

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