Yuan near 20-month low as economic gloom overshadows easing lockdowns

Article content

SHANGHAI — China’s yuan hovered just off a

20-month low against the dollar on Monday, as much

weaker-than-expected economic indicators offset the lift to

sentiment from Shanghai’s plan to lift most COVID-19 curbs after

a weeks-long lockdown.

The Chinese financial hub aims to reopen broadly and allow

normal life to resume from June 1, a city official said on

Monday, after declaring that 15 of its 16 districts had

eliminated cases outside quarantine areas.

“With the exception of Beijing, outbreaks elsewhere in the

Article content

country have eased too,” said Julian Evans-Pritchard, senior

China economist at Capital Economics.

“Assuming this proves durable, it paves the way for an

economic rebound starting this month.”

COVID-induced lockdowns across the country and mobility

restrictions have disrupted activity, taking a heavy economic

toll. Official data released on Monday showed retail sales and

industrial output contracted in April and missed market

forecasts by a big margin.

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

set the midpoint rate at 6.7871 per dollar, 27 pips

firmer than the previous fix 6.7898.

In the spot market, the onshore yuan opened at

6.7839 per dollar and was changing hands at 6.7925 at midday, 25

Article content

pips weaker than the previous late session close.

COVID lockdowns and China’s economic slowdown, along with a

strengthening dollar, have piled much pressure on the yuan in

recent weeks and many economists expect such depreciation to

continue.

“Down the road, we expect the PBOC to allow for more

exchange rate flexibility,” said Alicia Garcia Herrero, chief

economist for Asia-Pacific at Natixis.

“At the current juncture, this means more likely

depreciation given the cautious outlook of the Chinese economy

due to the COVID lockdowns and the general strength of the

dollar.”

But she noted that stabilizing the currency remains

important for shoring up investor sentiment amid heightened

capital outflow risks.

Article content

By midday, the global dollar index rose to 104.643

from the previous close of 104.563, while the offshore yuan

was trading at 6.8094 per dollar.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.7871 6.7898 0.04%

Spot yuan 6.7925 6.79 -0.04%

Divergence from 0.08%

midpoint*

Spot change YTD -6.44%

Spot change since 2005 21.85%

revaluation

Key indexes:

Item Current Previous Change

Thomson 100.45 100.43 0.0

Reuters/HKEX

CNH index

Dollar index 104.643 104.563 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 percent from official midpoint rate it sets each

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.8094 -0.25%

*

Offshore 6.84 -0.77%

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 Andrew Galbraith; Editing by Sam

Holmes)