SHANGHAI: China’s yuan edged up on Wednesday from the previous session’s near two-week low against the dollar, as recent signs of easing Sino-US tensions offset broad greenback strength in global markets.
Currency traders attributed the yuan’s resilience as the dollar hovered at a two-decade high against a basket of major peers to anticipation US President Joe Biden may announce a rollback of tariffs on some Chinese goods as early as this week.
“A rollback of US tariffs could theoretically remove some constraints on China’s exports and thus push down USD/RMB,” Chen Jingyang, Asian FX strategist at HSBC, said in a note.
“Looking beyond the sentiment effects, with external demand set to weaken amid a global hiking cycle, some tariff cuts are unlikely to change expectations of a narrowing trade surplus for China,” Chen added, cautioning against excess optimism on the impact of possible tariff reductions.
Yuan inches up as US yield advantage narrows slightly
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at a three-week low of 6.7246 per dollar, 260 pips or 0.39% softer than the previous fix 6.6986.
In the spot market, the onshore yuan bounced from a two-week low of 6.7230 per dollar hit late Tuesday and changed hands at 6.7050 at midday, 140 pips firmer than the previous late session close.
However, traders and analysts noted that COVID-19 flare-ups on multiple fronts across the country, including an emerging cluster in Shanghai, prompted some market concerns over wider disruption to economic activity.
“Looking ahead, factors, like the uncertainty over COVID-19 outbreaks, COVID-19 policies, challenging labour market and negative wealth effect due to property price declines, imply that the improvement in consumer appetite will only be gradual,” analysts at MUFG Bank said in a note.
“We expect more policy stimulus to promote a stronger overall economic growth and a stable property sector. For the remaining time of 2022, we expect China’s GDP growth to mildly accelerate in Q3 and Q4, and a 3.8% year-on-year GDP growth for 2022.”
They also expect the yuan to trade at 6.65 at end-Q3 before strengthening to 6.60 by the end of this year.
By midday, the global dollar index traded at 106.438, while the offshore yuan was trading at 6.7085 per dollar.