SHANGHAI: China’s yuan hit a seven-week high against the dollar on Friday, as investors cheered the Chinese government’s decision to ease some of the country’s strict COVID-19 prevention controls.
The rise in the Chinese yuan also came as the dollar languished after cooler-than-expected US inflation data fuelled market expectations for a slower pace of Federal Reserve rate hikes.
Chinese health authorities on Friday eased some of the country’s heavy COVID-19 curbs, including shortening by two days quarantine times for close contacts of cases and inbound travellers, and eliminating a penalty on airlines for bringing in infected passengers.
“It looks like the two game changers coming together,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank. “Investors are squeezing their short yuan positions,” he added, seeing further upside room for the yuan to head to 7.05 per dollar.
Yuan slips as weak inflation fans growth concerns
The onshore yuan jumped as high as 7.0650 per dollar, the strongest level since Sept. 22, before last trading at 7.0957 as 0622 GMT.
Its offshore counterpart rose to 7.0592 per dollar, its highest level since Oct. 6.
It traded at 7.0850 as of 0622 GMT. Persistent COVID-19 disruptions, stringent prevention measures and mobility restrictions have piled pressure on the world’s second-largest economy, with the International Monetary Fund in October cutting China’s full-year growth forecast to 3.2% from 4.4% previously.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1907 per dollar, the highest since Oct.31.
That represented a 0.7% rise on the previous fix of 7.2422, the biggest one-day jump in the official rate guidance in nearly six months.
Traders and analysts said the official midpoint largely matched their projections, reflecting the broad dollar weakness in global markets.
Friday’s fixing was 17 pips weaker than Reuters’ estimate of 7.1890.
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