SHANGHAI: China’s yuan firmed against the greenback on Wednesday, as Beijing’s decision to ease quarantine requirements for travellers supported expectations of a faster economic recovery.
The People’s Bank of China set the midpoint rate at 6.7035 per dollar prior to market open, weaker than the previous fix 6.693.
In the spot market, the yuan opened at 6.7050 per dollar and was changing hands at 6.7022 at midday, 58 pips stronger from the previous late session close.
The dollar slipped against most major peers on Wednesday as a decline in U.S. yields took some of the sheen off the currency, with investors weighing recession risks from aggressive Federal Reserve rate hikes.
China on Tuesday slashed the quarantine time for inbound travellers by half in a major easing of one of the world’s strictest COVID-19 curbs.
“Such a policy tweak is positive to China’s growth outlook and the H2-growth projection should be subjected to upward revision,” said Ken Cheung, Chief Asian FX Strategist at Mizuho Bank, adding the move paved the way for further relaxation.
China’s yuan eases after PBOC chief vows to keep policy accommodative
However, “achieving the annual target of around 5.5% growth will remain very challenging,” he said.
China’s economy has recovered to some extent, but its foundation is not solid, Premier Li Keqiang said on Tuesday.
“Should more upside surprises be delivered, either in mainland China’s macro policy or June data, positive sentiment could push USD-RMB down further to near 6.65, the bottom of the recent trading range since May,” said Jingyang Chen, Asian FX Strategist at HSBC in a note.
Chen added it remains unclear if the latest positive news could be a game changer that causes the yuan to break out of the recent 6.65-6.80 range.
Reuters poll showed China’s factory activity due later this week likely expanded in June for the first time in four months.
Maybank analysts said the yuan is “not showing much directional bias at this point,” and “a break-out is required for further directional cues.”
The global dollar index rose to 104.51 from the previous close of 104.506. The offshore yuan was trading at 6.7046 per dollar.
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