China’s yuan set for best week in a year, snapping six weeks of losses

SHANGHAI: China’s yuan eased on Friday but still looked set for its biggest weekly gain in a year, snapping six straight weeks of losses, reflecting broad dollar weakness in global markets.

There was little reaction to China’s decision to cut its benchmark reference rate for mortgages on Friday by an unexpectedly wide margin, as Beijing seeks to revive the ailing housing sector and boost the cooling economy.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7487 per dollar, 37 pips firmer than the previous fix 6.7524.

In the spot market, the onshore yuan eased from an overnight high of 6.7095 per dollar to trade at 6.7274 at midday, 167 pips or 0.25% away from the previous late session.

If it finishes the late night session at the midday level, it would have gained 0.93% against the dollar for the week, the biggest weekly strengthening since late May 2021.

Traders attributed the strength to recent dollar weakness.

The dollar index, which measures it against six major rivals, was down 1.5% for the week to 102.96, weighed down by a retreat in Treasury yields and fatigue after the greenback’s breathless 10%, 14-week surge.

Yuan eases

The yuan had plunged more than 6% since late April, sudden and deep losses for a currency that has long been tightly managed and usually moves in thin ranges.

But currency traders said corporate’s dividend payments could emerge soon to cap this week’s gains.

Offshore-listed Chinese firms usually have to buy dollars to pay overseas shareholders from June to August, and such demand could pile downside pressure on the yuan.

Widespread COVID-19 lockdowns in many cities includng Shanghai has delayed some of those transactions.

“Speaking from the short-term trend, the yuan’s depreciation momentum has moderated,” said Eva Yi, chief economist at Huatai Securities.

Yi added that the yuan’s performance would depend on the domestic COVID-19 situation, changes to economic growth prospects, and financial risks.

By midday, the offshore yuan was trading at 6.7362 per dollar.