HONG KONG — China’s yuan firmed
against the U.S. dollar on Friday, but looked set to post its
biggest annual loss since 1994 as tough anti-COVID measures
battered the world’s second-largest economy and a wave of new
infections clouds the outlook for recovery.
Having kept its borders all but shut for three years,
imposing a strict regime of lockdowns and relentless testing,
China abruptly reversed course toward living with the virus on
Dec. 7. Fresh cases are now erupting across the country,
threatning further economic disruptions.
The spot yuan opened at 6.9555 per dollar and was
changing hands at 6.9585 at midday, 66 pips stronger than the
previous late session close and -0.09% away from the midpoint.
The People’s Bank of China set the midpoint rate
at 6.9646 per U.S. dollar prior to market open, firmer than the
previous fix 6.9793. The spot rate is allowed to trade with a
range 2% above or below the official fixing on any given day.
But the onshore yuan looked set to depreciate by 8.7%
against the dollar for the year-to-date, its worst performance
since 1994 when China unified market and official rates.
Still, “there is a silver lining going into 2023. Given how
renminbi assets have suffered from a broad sell-off in 2022,
foreign investors’ allocation to Chinese assets is currently at
historical low,” said Christopher Wong, FX strategist at OCBC
China’s reopening of its economy has injected optimism that
would support portfolio inflows and the yuan, he said.
OCBC expects the yuan to finish the year at 6.98; and
gradually recovers to 6.90 at the end March, and 6.75 by the end
COVID infections started to sweep across China in November
and picked up this month after Beijing dismantled its zero-COVID
policies, including regular PCR testing on its population and
publication of data on asymptomatic cases.
While China reported one COVID death recorded on Thursday,
UK-based health data firm Airfinity estimates that about 9,000
people are dying each day from COVID.
Still, foreign inflows into Chinese assets could quickly
return, if China’s GDP data next year shows its economic growth
is stabilizing, said Chi Lo, Asia Pacific senior market
strategist at BNP Paribas Asset Management.
“Now the biggest unknown is the risk of the government
reimposing its mobility restriction measures if there was a
resurgence of COVID cases after the Chinese new year to prevent
overwhelming its medical system,” he said.
The global dollar index rose to 103.948 from the
previous close of 103.836.
The offshore yuan was trading 0.16% weaker than the
onshore spot at 6.9695 per dollar.
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 6.8035, 2.37% away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot
The yuan market at 3:22AM GMT:
Item Current Previous Change
Spot change YTD
Spot change since 2005
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC’s official midpoint,
since non-deliverable forwards are settled against the midpoint.
(Reporting by Georgina Lee; Editing by Kim Coghill)