SHANGHAI: China’s yuan eased against the dollar on Monday as sentiment was impacted after reports of the country’s first COVID-related deaths since strict prevention protocols started to be dismantled earlier this month.
Yuan trades were sluggish as many market participants had to work from home and trade remotely amid the fast spread of the virus in major cities.
The volume hit $6.3 billion as of midday, down from the normal half-day volume of about $15 billion.
Daily average dollar/yuan trade in the interbank market shrunk to about $20 billion last week, the lowest since April, when the financial hub of Shanghai imposed lockdowns.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.9746 per dollar, 45 pips, or 0.06% firmer than the previous fix 6.9791.
In the spot market, the onshore yuan opened at 6.9700 per dollar and was changing hands at 6.9831 at midday, 81 pips weaker than the previous late session close.
COVID-19 developments and monetary policy divergence with other major economies, particularly the United States, have been major factors affecting the yuan’s performance and market sentiment.
The Chinese currency has lost about 9% to the dollar so far this year and is on course for the biggest annual drop since 1994, when China unified market and official rates.
But some economists believe the yuan may reverse the weakening trend in 2023 as improved economic fundamentals could lend support.
“Favorable factors such as improved growth expectations might still outweigh unfavorable ones such as deterioration in goods and services trade balances, and we continue to expect small appreciation of the USD/CNY over the 12-month horizon to 6.90,” analysts at Goldman Sachs said in a note.
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Senior leaders also vowed to focus on stabilising the $17-trillion economy in 2023 and step up policy adjustments to ensure targets are hit, according to a statement published by the official Xinhua News agency following the annual Central Economic Work Conference.
Various officials pledged to keep financial market liquidity sufficient and implement proactive fiscal policy to underpin the economy next year.
By midday, the dollar index fell to 104.62 from the previous close of 104.701, while the offshore yuan was trading at 6.9827 per dollar.
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