SHANGHAI: China’s yuan inched lower against the dollar on Tuesday, under downward pressure from the greenback’s strength in global markets and signs of geopolitical tensions.
Before the market opened, the People’s Bank of China (PBOC) set the yuan’s midpoint rate at 6.8557 per dollar, 86 pips or 0.13% firmer than the previous fix of 6.8643.
In the spot market, the onshore yuan opened at 6.8605 per dollar and was changing hands at 6.8692 at midday, 129 pips weaker than the previous late session close.
Currency traders said risk-averse sentiment weighed on the yuan. Some investors were cautious about the upcoming one-year anniversary of the crisis between Russia and Ukraine.
“US-China geopolitical tensions are likely also weighing on the CNH (offshore yuan),” analysts at Maybank said in a note.
“Joe Biden made a surprise visit to Ukraine to see President Zelenskiy which comes just after China had talked of a peace plan for the Ukraine-Russia conflict.”
China is “deeply worried” about the escalation of the Ukraine conflict and the possibility of the situation spiralling out of control, China’s foreign minister Qin Gang said on Tuesday.
Separately, some market participants expected the Chinese currency to weaken over the medium to long term, because deficits in services trade would widen following the end of Beijing’s strict zero-COVID policy. After almost three years of border restrictions, Chinese people can now conveniently travel abroad.
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“We expect RMB to underperform with the normalization of domestic activities in months ahead,” as the trade surplus narrowed and outflow through tourism and other channels resumed, Citi analysts said in a note.
They expected the yuan’s trade-weighted value against its major trading partners to weaken to between 94 and 95 in coming months, from 100.33 currently.
By midday, the global dollar index had risen to 104.053 from the previous close of 103.862, while the offshore yuan was trading at 6.8765 per dollar.
The one-year forward value for the offshore yuan traded at 6.7143 per dollar, implying 2.42% appreciation within 12 months.
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