China’s yuan weakens as COVID surge reignites concerns over economic growth

By Georgina Lee HONG KONG, Nov 25 (Reuters) – China’s yuan weakened on Friday as a steady rise in Covid cases fueled traders’ concerns about the slowing economy and doubts whether further monetary easing is their goal, the boosting growth, has reignited . China on Thursday reported another record high of new local Covid-19 cases, totaling 32,695, as cities across the country enforce measures and containment measures to combat outbreaks. Thursday’s new cases set a daily record for a second straight day. “The risk in the winter months is indeed greater social restrictions and associated economic disruption. The developments have held the yuan subdued amid the US dollar’s decline over the past few days,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets. The spot yuan opened at 7.1650 per dollar and changed hands at 7.1585 midday, 45 pips weaker than the previous late close and 0.34% off the midpoint. The spot rate is currently allowed to trade in a range of 2% above or below the official fixing on any given day. The People’s Bank of China put the pre-market mid-rate at 7.1339 per US$, weaker than the previous fix of 7.1201. The global dollar index fell to 105.812 from the previous close of 106.076, near a three-month low. However, analysts said further weakness in the yuan against the dollar will be limited by the lingering impact of Wednesday’s Federal Reserve minutes, which signaled it was moving toward a slower pace of rate hikes. This has helped send the dollar index to a three-month low and was on course for a weekly loss on Friday. Still, the yuan gave back some of its gains on Thursday after the State Council, China’s cabinet, gave a strong easing signal on Wednesday, saying it would make timely cuts to banks’ reserve requirement ratio (RRR) to keep liquidity ample. Further easing could have only a limited impact on boosting credit demand, analysts say. This is because an RRR cut, which injects additional liquidity into the interbank system, may not be effective in stimulating credit expansion if credit demand remains subdued during the housing and macro downturn, said Ken Cheung, chief Asian FX Strategist at Mizuho Bank in a research note. A RRR cut would be “an encouraging signal to show the PBoC’s determination to boost growth, but the actual impact in supporting the real economy is likely to prove limited,” he said. The offshore yuan traded 0.01% weaker than the onshore spot at 7.1595 per dollar. One-year non-deliverable offshore futures contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.965, 2.42% off the mean. One-year NDFs are settled at the midpoint, not the spot rate. The Yuan Market at 4:32 GMT: ONSHORE SPOT: Position Current Previous Change PBOC Midpoint -0.19% 7.1339 7.1201 Spot Yuan 7.154 -0.08% 7.1595 Deviation from midpoint* 0.36 % Spot Change YTD -11.24 % Spot Change Since Revaluation 2005 15.60 % Key Indices: Position Current Previous Change Thomson Reuters/HKEX 0.0 CNH Index Dollar Index 105.711 -0.3 106.076 *Variation of dollar/yuan exchange rate . A negative number indicates the spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall by 2% from the official mid-rate it sets each morning. OFFSHORE CNH MARKET Instrument Power Difference to onshore offshore spot Yuan * 0.0 7.1595 1% Non-deliverable offshore date 6.965 2.42% ** *Premium for offshore spot over onshore date **The figure reflects the Difference from the official mean of the PBOC reflected as undeliverable forwards are settled against the midpoint. . (Reporting by Georgina Lee; Editing by Stephen Coates)

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