SHANGHAI: China’s yuan rose against the dollar on Tuesday, helped by signs of economic recovery and foreign inflows into Chinese stocks as Beijing unveiled a raft of stimulus measures and eased regulations on the tech sector.
A possible removal of some US tariffs on Chinese goods also lent support to the yuan, though some analysts caution that the world’s second-biggest economy’s position as a shelter from the global markets turmoil could be short-lived.
Onshore yuan opened at 6.6829 per dollar and was changing hands at 6.6869 at midday, firmer than the previous late session close, after the People’s Bank of China set a stronger midpoint rate.
The currency has stabilized over the past month, following a slump in April when investors dumped yuan-denominated assets, worried about the impact of COVID lockdowns and the fallout from the Russia-Ukraine crisis.
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In a report published on Tuesday, Maybank attributed the yuan’s recent resilience to many factors.
Those included easing of China’s COVID restrictions, signs of the economy bottoming out, a continuous raft of support measures and US President Joe Biden’s indication that he would talk to his Chinese counterpart Xi Jinping soon on tariff removal.
“Indeed, the selling pressure for Chinese investment from foreign investors has been easing,” Ken Cheung, chief Asian FX strategist at Mizuho Bank wrote on Tuesday.
Foreign inflows into Chinese equities recently “should help offset the outflow pressure in China bonds market due to the US-China yield gap widening,” he added.
However, French bank Natixis warned that China’s recent insulation from the global rout in financial markets may not last, potentially leading to renewed capital outflows.
“For equity inflows, a smaller than expected recovery may shy investors away,” Asia Pacific Chief Economist Alicia Garcia Herrero wrote.
“The yield differentials will only increase further with the Fed’s hawkishness, which means bond outflows are bound to continue.
Only more robust growth versus the world, lesser regulatory pressure, and smaller geopolitical risks can help.“
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