SHANGHAI: China’s yuan edged higher against the dollar in thin year-end trading on Thursday, though its gains were capped by investors’ concerns over the spread of infections since the government began dismantling its zero-COVID regime earlier this month.
The Chinese currency is also on course to book its biggest annual loss since 1994, when China unified market and official rates, having depreciated by 8.85% against the dollar in the year-to-date.
A string of countries, including the United States, Italy and Japan, said they will impose mandatory COVID-19 tests on travelers from China, after Beijing’s decision to lift stringent zero-COVID policies. Around half the passengers on two flights from China to Milan’s main airport, Malpensa, tested postive for COVID.
Christopher Wong, FX strategist at OCBC Bank, sounded a “note of caution” on the rapid pace of China’s reopening, saying COVID infections were expected to reach a fresh peak in January, bringing with it associated risks to the economy.
He also said that “a scenario of fresh COVID waves in other countries or a new variant could undermine sentiment.”
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.9793 per dollar, 112 pips or 0.16% weaker than the previous fix of 6.9681.
In the spot market, the onshore yuan opened at 6.9801 per dollar and was changing hands at 6.9722 at midday, 103 pips firmer than the previous late session close.
Trading remained thin on Thursday, with volume standing at $4.6 billion as of midday, compared with a normal half-day volume of about $15 billion.
Currency traders said market was very “illiquid” at the year-end, a typical holiday season for overseas market participants, while recent COVID infections across the country has also kept many domestic traders at home.
“(Border and economic) reopening should benefit the yuan, but the market is still worried about infection, hence, the pace of economic recovery remains uncertain,” said a trader at a Chinese bank.
By midday, the global dollar index stood at 104.359, and the offshore yuan was trading at 6.9787 per dollar.
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