China’s yuan eases as uneven economic recovery dents sentiment

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SHANGHAI — China’s yuan eased

against the dollar on Wednesday as a slew of data pointed to an

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uneven economic recovery since Beijing dropped its stringent

zero-COVID strategy, denting market sentiment.

Investors were also cautiously waiting to see if the

Federal Reserve will hike interest rates next week after the

collapse of two banks sparked fears of a wider financial crisis

in the U.S., though worries about possible contagion have eased.

Official data on Wednesday showed that China’s retail sales

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in the first two months of 2023 swung back to growth, but

factory activity expanded slightly slower than expected and the

property sector remained weak, suggesting the bruised economy

still needed time to fully emerge from pandemic damage.

“We think CNY will remain on the back foot, as re-opening of

the economy should organically lead to a lower current account

surplus, while geopolitical risk remains on the radar,” analysts

at Goldman Sachs said in a note.

“Policy makers have shifted their focus to be more

pro-growth and will likely lean against any significant CNY

appreciation vs CFETS basket, in our view.”

Prior to the market opening, the People’s Bank of China

(PBOC) set the midpoint rate at 6.8680 per dollar,

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269 pips or 0.4% firmer than the previous fix of 6.8949.

In the spot market, the onshore spot yuan opened

at 6.8820 per dollar and was changing hands at 6.8843 at midday,

48 pips softer than the previous late session close.

However, the weakness in the yuan was capped by uncertainly

over the Fed’s tightening trajectory and what that will mean for

the dollar.

“Short-term sentiment and market expectations have changed

too rapidly over the past two weeks, making it really hard to

place bets on the currency,” said a trader at a foreign bank.

The dollar found support as investors dialed back

expectations of U.S. rate cuts as fear of a banking crisis ebbed

and another stubbornly high inflation print landed.

Separately, China’s central bank ramped up liquidity

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injections as it rolled over maturing medium-term policy loans

for a fourth month in a row, while keeping the interest rate

unchanged.

By midday, the global dollar index stood at 103.518,

while the offshore yuan was trading at 6.884 per

dollar.

The one-year forward value for the offshore yuan

traded at 6.7337 per dollar, implying a 2.23% appreciation

within 12 months.

The yuan market at 0356 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.868 6.8949 0.39%

Spot yuan 6.8843 6.8795 -0.07%

Divergence from 0.24%

midpoint*

Spot change YTD 0.23%

Spot change since 2005 20.22%

revaluation

Key indexes:

Item Current Previous Change

Dollar index 103.518 103.597 -0.1

*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 6.884 0.00%

*

Offshore 6.7402 1.90%

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 Winni Zhou and Brenda Goh; Editing by Kim

Coghill)