China’s yuan touches near one-week low on worsening COVID outbreaks – ZAWYA

China’s yuan touched its lowest level against the dollar in nearly a week on Thursday, as worsening COVID-19 outbreaks across the country dented market confidence ahead of key U.S. inflation data due later in the session.

China reported 9,005 new COVID-19 infections on Wednesday, with millions of residents in the southern manufacturing hub of Guangzhou told to get tested as the city grapples with its worst outbreak so far. “It is hard to tell whether Guangzhou will repeat the experience of Shanghai in spring this year,” said Ting Lu, chief China economist at Nomura. “If Guangzhou repeats what Shanghai did in spring, it will lead to a new round of pessimism on China,” Lu said. Investors are likely to closely monitor lockdown measures in Guangzhou due to the sheer size of the city and for insight into the future of China’s zero-COVID policy, he added.

Market hopes for the relaxation of some pandemic restrictions lifted Chinese currency and stock markets last week. The government imposed a months-long lockdown on the financial hub of Shanghai earlier this year to curb the spread of the coronavirus. Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.2422 per dollar, 233 pips or 0.32% weaker than the previous fix 7.2189, and the weakest since Nov. 4. The spot market tracked the official guidance fixing. The onshore yuan opened at 7.2515 per dollar and eased to a low of 7.2747, the softest level since Nov. 4. By midday, the yuan was changing hands at 7.2608, 168 pips weaker than the previous late session close. “The market narrative is likely to alternate between reopening optimism and paring back of those expectations on lockdown news,” said Duncan Tan, rates strategist at DBS.

“We think it would be appropriate to expect COVID policy easing and reopening process to be gradual and calibrated, meaning that (the) growth recovery outlook would be slow and bumpy.” Persistent COVID disruptions and mobility restrictions have hurt domestic demand and weighed on the world’s second-largest economy, with the International Monetary Fund cutting China’s full-year growth forecast to 3.2% from 4.4% previously. The projection is far below Beijing’s annual target of about 5.5% set in March. Traders said they were also keeping an eye on U.S. inflation data later in the day to see whether it will support the case for a slowdown in the Federal Reserve’s aggressive monetary tightening.

The U.S. central bank raised rates last week but signalled it may be nearing an inflection point in what has become the swiftest tightening of U.S. monetary policy in 40 years. Economists polled by Reuters expect the annual rise in the headline consumer price index to land at 8% for October. “The yuan continues to take cues from the dollar’s movements,” analysts at OCBC Wing Hang Bank said in a note. “Investors are likely to stay cautious ahead of the U.S. inflation data, with the yuan trading in a range of 7.26 to 7.27 per dollar.”

By midday, the global dollar index had fallen to 110.245 from the previous close of 110.549, while the offshore yuan was trading at 7.264 per dollar. The yuan market at 0408 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.2422 7.2189 -0.32% Spot yuan 7.2608 7.244 -0.23% Divergence from 0.26% midpoint* Spot change YTD -12.48% Spot change since 2005 13.99% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 110.245 110.549 -0.3 *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 7.264 -0.04% * Offshore 7.0695 2.44% 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 Ana Nicolaci da Costa)


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