© Stocksak. FILEPHOTO: This illustration photo is of a China yuan note, May 31, 2017. REUTERS/Thomas White/Illustration/File Photo/File Photo
SHANGHAI, (Stocksak), – The Yuan briefly touched a 1-1/2 week high against the dollar, before retracing all gains by midday on Thursday. This happened because Chinese cities tightened their controls against COVID outbreaks. This added to economic pressure.
The yuan went through a roller-coaster week this week. After falling to a 15-year low on Tuesday, it rebounded to post sharp gains the following day.
The People’s Bank of China (PBOC), which set the midpoint rate at 7.1570 per $1, 68 pips higher than the previous fix of 7.1638, was in place prior to Thursday’s market opening.
Analysts and traders said that the midpoint was in line with market projections, and that it effectively guided spot prices closer towards the official guidance rate. Thursday’s fixing was three pips more firm than Stocksak’s estimate of 7.1573.
Christopher Wong, FX strategist at OCBC Bank stated that the official midpoint “helped stabilize sentiment and reaffirmed our view that disorderly, one-off sharp adjustments is not what Chinese policymakers want.”
The dollar opened at 7.1632 and climbed to a high of 7.16 at one stage, the highest level since Oct. 18. Midday, however, the price was at 7.2165. This is 455 pips, or 0.6%, less than the closing late session close.
“While panic selling in RMB/Chinese assets appears to have ended, we expect the CNH spot to enter into a range-trading mode between 7.7 and 7.3 in short term and the USD movements as well as updates regarding China policy roadmap under new leaders will be the key driver of the RMB,” stated Ken Cheung, chief Asian FX strategist, Mizuho Bank.
Analysts and traders said that yuan sentiment was also boosted by rising market expectations that the U.S. Federal Reserve would relax its aggressive stance regarding interest rate hikes. This prompted a pullback of the dollar.
Additionally, companies have a higher yuan demand for certain payments heading into the end of the year.
Some currency traders claim that companies and households have begun to settle their FX bills after receiving better rates from such conversions.
Analysts said that the yuan will be under pressure because of the economy’s difficulties.
Alvin Tan of RBC Capital Markets’ Asia strategy, said that the medium-term trend (in USD/RMB), remains in place despite China’s economic headwinds. But, authorities will continue to work to manage the movement.
The economy rebounded at a faster-than-anticipated clip in the third quarter, but a more robust revival in the longer term will be challenged by persistent COVID-19 curbs, a deep property slump and global recession risks.
China reported Thursday that it had more than 1,000 COVID cases in China for the third consecutive day. This is a small number compared to the tens of thousand per day that put Shanghai under lockdown earlier this year, but enough to cause more restrictions and curbs across the country.
Cities from Wuhan, central China, to Xining, in the northwest, are increasing COVID-19 curbs. They are sealing up buildings and locking down districts, and throwing millions into disarray in an effort to stop spreading epidemics.
Another worrying sign is that profits at large industrial companies fell faster in the January-September period, according to data.
The global was at 109.769 by midday, while the dollar was trading at 7.2313.
The yuan market at 4:01 GMT
PBOC midpoint 7.157 7.1638 0.10%
Spot yuan 7.172 7.171 -0.63%
Divergence starting at 0.83%
Spot change YTD -11.94%
Spot changes since 2005 14.69%
Item Current Previous Change
Dollar index 109.769109.7 0.1
*Divergence of the dollar/yuan exchange rate. Negative numbers indicate that spot currency is trading weaker than the midpoint. The People’s Bank of China’s (PBOC), allows the exchange rate rise or fall by 2 percent from the official midpoint rate it sets each day.
OFFSHORE MARKET CNH MARKET
Current Instrument Difference
Offshore spot yuan * 7.2313 -0.20%
Offshore 7.077 1.133%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint..