Yuan edges up as Shanghai declares COVID victory, outlook remains cautious

SHANGHAI: China’s yuan edged up against the dollar on Monday, after Shanghai declared victory against COVID-19 over the weekend, but gains were limited ahead of more convincing signs of a recovery.

Shanghai, the country’s commercial hub, will gradually resume dining-in at restaurants from June 29 after the city’s Communist Party chief declared victory in the battle against the latest wave of COVID shocks that put the city under lockdown for two months.

Shanghai lifted a two month city-wide lockdown on June 1, but many establishments have remained unable to offer indoor dining since mid-March.

Traders said the news lifted market sentiment, but investors remained cautious and looked to data to gauge the pace of the economic recovery before placing huge bets on the currency.

June economic indicators, including official factory activity data, are due later this week.

China’s yuan set for first weekly gain in three

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at a more than two-week high of 6.6850 per dollar, 150 pips or 0.22% firmer than the previous fixing of 6.7.

In the spot market, onshore yuan opened at 6.6890 per dollar and was changing hands at 6.6876 at midday, 22 pips firmer than the previous late session close.

Some traders and investors said domestic economic fundamentals remained their key focus amid doubts over Beijing’s ability to achieve this year’s growth target.

“Given China’s weak second quarter and with its COVID stance unlikely to change soon, we expect the country’s growth to fall well short of the ‘around 5.5%’ target,” said Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings.

Wang Yiming, a member of the monetary policy committee of the PBOC, told a forum over the weekend that China’s economy would need a sharp rebound in the second half of this year to reach its growth targets.

To meet the full-year target of “around 5.5%”, China must reach 7% to 8% of economic growth in the second half of the year, which is 3 to 4 percentage points higher than the growth rate in Q3 and Q4 of last year, Wang said, noting the difficulty would be “huge”.

By midday, the global dollar index fell to 104.089 from the previous close of 104.185, while the offshore yuan was trading at 6.6839 per dollar.