SHANGHAI: China’s yuan steadied against the dollar in thin trade on Wednesday, as investors anxiously await concrete measures to support the economy following the rapid spread of COVID-19 across the country.
Trading remained tepid, with normal volumes to midday nearly halved, while sentiment weakened as the financial hub of Shanghai again reported more than 25,000 new COVID daily infections, intensifying worries about disruption to economic activity.
“The market still holds hope for easing but the March credit data has somewhat raised the prospect of targeted measures instead,” said Frances Cheung, rates strategist at OCBC Bank, after the data showed new bank lending rose more than expected.
“Investors may also turn increasingly cautious as the week progresses with no easing in terms of a medium-term lending facility (MLF) rollover or a reserve requirement ratio (RRR) cut yet, while the market has to wait till Friday for a decision on a potential rate move.”
A 150 billion yuan ($23.6 billion) MLF loan expires on Friday when the central bank will detail how much it will inject into the market.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.3752 per dollar, 43 pips firmer than the previous fix of 6.3795.
In the spot market, the onshore yuan opened at 6.3685 per dollar and was changing hands at 6.3659 at midday, 4 pips firmer than the previous late session close.
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“Market participants have little interest in trading their proprietary accounts these days,” said a dealer at a foreign bank, noting that most of his peers in Shanghai had to stay home and trade remotely.
Other traders echoed the comments and said the market was also unwilling to take on big bets before Friday’s rate action.
Traders looked through China’s March trade data, which showed exports rising in the first quarter, as the damage from the latest COVID wave is not expected to show up in macro economic data for some time.
“The weak domestic demand today will show up in trade data in the coming months,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
“Exports growth in April will likely slow … as the supply chain disruption has an adverse impact on industrial production.”
By midday, the global dollar index fell to 100.269 from the previous close of 100.292, while the offshore yuan was trading at 6.3745 per dollar.
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