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China’s yuan gains on hopes of more economic support measures in policy meet

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HONG KONG — China’s yuan firmed on

Friday against the U.S. dollar, as traders remained optimistic

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about more measures to support the economy from the ongoing

Central Economic Work Conference where top government officials

discuss policy direction for next year.

The closed-door, two-day annual meeting is expected to end

on Friday, and comes at a time when the government has announced

measures to transition out of its zero-COVID policy which has

been hindering growth.

Economic growth is expected to continue picking up pace

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following the implementation of new COVID rules, the National

Development and Reform Commission said on Friday.

Adding credence to expectations that China’s central bank

will ramp up liquidity support to spur growth, the People’s Bank

of China (PBOC) rolled over maturing medium-term policy loans on

Thursday while keeping the interest rate unchanged for the

fourth straight month, resulting in a net 150 billion yuan

($21.52 billion) fresh fund injection into the banking system.

“The PBOC will focus more on injecting funds to

maintain the current liquidity rather than pushing the

interest rate significantly laxer” as the key to support growth

is through channeling liquidity, said Alicia Garcia Herrero,

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chief economist for Asia Pacific at Natixis, in a report on

Thursday.

The spot yuan opened at 6.9850 per dollar and was

changing hands at 6.9730 at midday, 30 pips stronger than the

previous late session close and -0.09% away from the midpoint.

The PBOC set the midpoint rate at 6.9791 per U.S.

dollar prior to market open, weaker than the previous fix of

6.9343. The spot rate is currently allowed to trade in a 2%

range above or below the official fixing on any given day.

The global dollar index fell to 104.371 from the

previous close of 104.558.

Natixis expects China’s economic growth to accelerate to

5.5% in 2023, and the yuan to rebound in the first quarter due

to moderating U.S. dollar strength.

The offshore yuan was trading 0.07% weaker than the

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onshore spot at 6.979 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 6.822, 2.30% stronger than the midpoint.

One-year NDFs are settled against the midpoint, not the spot

rate.

The yuan market at 3:46AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint

-0.64%

6.9791 6.9343

Spot yuan

6.976 0.03%

6.974

Divergence from

midpoint*

-0.07%

Spot change YTD

-8.88%

Spot change since 2005

revaluation 18.68%

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan

* 6.979 -0.07%

Offshore

non-deliverable 6.822 2.30%

forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.

.

!RIC {.RXYH} is invalid

($1 = 6.9709 Chinese yuan renminbi)

(Reporting by Georgina Lee; Editing by Muralikumar

Anantharaman)

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