HONG KONG: China’s yuan weakened on Thursday to its lowest in nearly a week as a spike in COVID-19 cases in the southern province of Guangdong sparked worries over a return to broader lockdowns.
The surge in cases tempered recent enthusiasm over signs that China was easing its strict policy on COVID-related restrictions, which had lifted the yuan to its strongest in nearly two months early this week.
“Fears of rising covid infections at home could force authorities to revert back to broader lockdowns,” Maybank analyst Saktiandi Supaat said in a report.
The People’s Bank of China set the midpoint rate at 7.0655 per dollar prior to the market open, weaker than the previous fix 7.0363.
The spot market rate opened at 7.0922 per dollar and was at 7.1313 at midday, 314 pips weaker than the previous late session close and 0.93 percent away from the midpoint.
The spot rate is allowed to trade within a range 2 percent above or below the official fixing on any given day.
The offshore yuan rate was trading at 7.1416 per dollar.
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Guangzhou, a city of nearly 19 million in Guangdong province, reported a rise in COVID-19 infections in data released on Thursday and is now the largest among China’s recent outbreaks.
Iris Pang, chief economist for Greater China at ING, said a mild correction in the yuan was expected after the strong rebound early this week.
ING recently raised its year-end forecast for the yuan to 7.22 per dollar from 7.4.
“China has eased COVID restrictions and is giving more breathing room for property developers.
The domestic economy should bottom from here,“ Pang said. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.9775, or 1.26 percent away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
The global dollar index rose to 106.501 from the previous close of 106.281, as strong US retail data cast doubt on market bets that inflation is in retreat and US interest rates need not rise too much further.
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