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 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 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 stabilising the currency remains important for shoring up investor sentiment amid heightened capital outflow risks.
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.