SHANGHAI: China’s yuan on Wednesday slipped from a two-month high against the dollar, pressured by safe-haven bids for the greenback following reports that a Russia-made rocket killed two people in Poland, heightening concerns over geopolitical risks.
The dollar edged up after reports of the explosion near Poland’s border with Ukraine, which Poland called a strike by a Russia-made projectile. US President Biden said after an emergency NATO meeting that the missile was probably not fired from Russia.
“The yuan was consolidating after recent sharp rebounds, while geopolitical tensions also affected market sentiment,” said a trader at a foreign bank.
Prior to the market opening, the People’s Bank of China (PBOC) set the yuan’s midpoint rate at a three-week high of 7.0363 per dollar, 58 pips or 0.08% firmer than the previous fix of 7.0421.
In the spot market, the onshore yuan opened at 7.0550 per dollar and was changing hands at 7.0802 by midday, 357 pips weaker than the previous late session close.
The spot price hit a high of 7.0201 per dollar on Monday, the highest since Sept. 20, underpinned by official moves to support China’s embattled property sector and the government’s decision to ease some of its strict COVID-19 prevention controls.
“We share market enthusiasm about a headline-driven relief rally in USD/CNY,” analysts at J.P.Morgan said in a note.
“We remain cautious about the medium-term outlook for the currency given poor visibility on a smooth path towards normalisation, and the clear medium-term balance of payments (BOP) drag from reopening.”
China yuan’s long-term strengthening trend will not change
Separately, data also suggested that overseas investors sold holdings of China’s onshore bonds for a ninth straight month in October, albeit at a slower pace, as interest rate differentials between China and the United States continued to drive foreigners away.
Foreigners offloaded 595.9 billion yuan worth of Chinese debt in the months to end-October, according to data from China Central Depository & Clearing Co (CCDC), the main depository institution for China’s interbank bond market.
By midday, the global dollar index had risen to 106.604 from the previous close of 106.404, while the offshore yuan was trading at 7.0799 per dollar.
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