SHANGHAI: China’s yuan extended gains against the dollar on Monday following its best week in nearly 1-1/2 years, supported by firmer central bank guidance and improved sentiment after Shanghai lifted some of its COVID-19 restrictions.
The financial hub of Shanghai reopened a small part of the world’s longest subway system on Sunday after some lines had been closed for almost two months, as the city paved the way for a more complete lifting of its painful lockdown.
“With Shanghai’s plan of reopening in a gradual pace and reaching full openness by the end of June, activities in Shanghai would moderately improve sequentially this May,” said Li Lin, head of global market research for Asia at MUFG Bank.
“Possible marginal improvement in COVID-19 containment measures would happen in near future, but still no sign of turnaround on current national ‘dynamic zero COVID-19’ policy.”
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.6756 per dollar, 731 pips or 1.1% firmer than the previous fix 6.7487 on Friday.
The move in Monday’s official guidance, the strongest fixing in more than two weeks, was the biggest one-day strengthening in percentage terms since 2005, when China revalued the currency and abandoned a decade-old peg against the greenback.
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The firmer midpoint lifted the spot market.
The onshore yuan opened at 6.6756 per dollar and was changing hands at 6.6825 at midday, 96 pips firmer than the previous late session close.
Currency traders attributed the yuan’s recent swings higher to dollar volatility in global markets, with investors cutting their bets on further greenback gains from rising US rates.
The yuan’s near-term performance would depend on the dollar and domestic COVID situations, said a trader at a foreign bank.
Beijing authorities on Monday extended work-from-home guidance for many of its residents to curb COVID-19 outbreaks in the capital.
By midday, the global dollar index fell to 102.697 from the previous close of 103.15, while the offshore yuan was trading at 6.693 per dollar.
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