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Markets

Yuan eases to 1-week low on dollar bounce

  • China will maintain policy support for its economic recovery, avoiding a sudden shift in policy, to help keep economic growth within a reasonable range in 2021, the Xinhua news agency said on Friday.
21 Dec 2020

SHANGHAI: The yuan eased to a one-week low against a rising US dollar on Monday, as Brexit uncertainties and tighter coronavirus lockdowns in some countries led investors seek the relative safe-haven of the greenback.

Currency traders said the yuan was pressured by a rebounding dollar, which rose against a softer pound after several European countries began closing their doors to travellers from the United Kingdom on Sunday amid alarm about a rapidly spreading strain of coronavirus.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at an over two-week low of 6.5507 per dollar, 192 pips or 0.29% weaker than the previous fix of 6.5315.

In the spot market, the onshore yuan opened at 6.5470 per dollar and eased to a low of 6.5519, the weakest level since Dec. 15. By midday, it was changing hands at 6.5506 at midday, 121 pips weaker than the previous late session close.

The yuan was passively reacting to the dollar strength, traders said, while they received increasing numbers of queries from their corporate clients about converting their dollars to yuan for various payments towards the year-end. Such conversion should drive the yuan higher.

Although the currency was not the key topic at China's Central Economic Work Conference, a gathering of top leaders and policymakers, the market will closely monitor any changes to policy stance, said a trader at a Chinese bank.

China will maintain policy support for its economic recovery, avoiding a sudden shift in policy, to help keep economic growth within a reasonable range in 2021, the Xinhua news agency said on Friday.

"Leaders vowed to keep the continuity, stability and sustainability of the macro policy, and not to U-turn its policy. Such guidance should reduce concern over the pre-mature stimulus withdrawal amid virus uncertainties," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

Separately, Gao Qi, strategist at Scotiabank in Singapore, said he would keep a close eye on the US-China tensions ahead of the Inauguration Day in January as China threatened to impose countermeasures after Washington added dozens of Chinese companies to a trade blacklist on Friday.

Market reaction was largely muted to China's decision to keep its benchmark lending rate for corporate and household loans unchanged on Monday, as expected, although improving economic fundamentals have raised speculation about a rate hike next year.

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