SHANGHAI: China’s yuan inched higher on Thursday, shrugging off a broadly stronger US dollar, as investors hoped upcoming data would show a further recovery in the Chinese economy after a sharp COVID-induced slump in the spring.
Official and private business surveys had pointed to improving conditions in June as lockdowns were lifted in Shanghai and some other larger cities, but some areas have recently reported flare-ups in COVID-19 cases again, which could slow or even stymie a recovery.
“Markets are awaiting the release of June economic indicators,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank, noting Shanghai’s reopening in June after two months of lockdown should help boost the economy.
“It’s hard to gauge if the rebound is sustainable,” Cheung added.
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China is set to release June FX reserves data later in the session, with inflation figures due on Saturday. Next week, credit and trade data will be released, with activity indicators and second-quarter GDP on July 15.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7143 per dollar, firmer than the previous fix 6.7246.
In the spot market, the onshore yuan opened at 6.7098 per dollar and was changing hands at 6.7011 at midday, 57 pips firmer than the previous late session close.
Foreign investors continued to cut holdings in Chinese bonds in June but added positions in equities, bucking the trend in other emerging markets, the Institute of International Finance (IIF) said on Wednesday.
Wee Khoon Chong, senior market strategist for APAC at BNY Mellon Markets, said the foreign equity inflows in June suggested that easing of COVID-related restrictions fostered rebounds in credit and investment growth.
“This, in our view, suggests an encouraging return of foreign investors after a directionless first five months of 2022,” he said.
In global markets, the dollar index continued to hover at a 20-year high against a basket of major currencies, driven up by global recession worries and safe haven bid for the greenback.
A deteriorating inflation situation and concern about lost faith in the Federal Reserve’s power to make it better prompted US central bank officials to rally around an outsized interest rate increase and a firm restatement of their intent to get prices under control, minutes of the June 14-15 policy meeting showed.
By midday, the global dollar index traded at 106.867, while the offshore yuan was trading at 6.7015 per dollar.
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