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China’s yuan hits fresh 5-month high, dollar demand caps gains

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SHANGHAI — China’s yuan advanced

further against the dollar for the fifth trading day on Tuesday,

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hitting a new nearly five-month high, supported by investor

optimism over the country’s reopening.

But traders said gains were capped after the Chinese

currency approached the key 6.75 per dollar mark, where some

corporate clients rushed to take advantage of the cheaper dollar

and bought on dips.

Prior to market opening, the People’s Bank of China (PBOC)

set the midpoint rate at 6.7611 per dollar, firmer

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than the previous fix of 6.8265.

In the spot market, the onshore yuan opened at

6.7650 per dollar and rose to a high of 6.7510 at one point, the

strongest since Aug. 15, 2022. By midday, it was changing hands

at 6.7698, 32 pips firmer than the previous late session close.

The yuan has gained about 2% against the dollar so far this

year and reversed much of 2022’s annual loss, the biggest in 28

years, boosted by China’s growth prospects after Beijing

reopened borders and dismantled COVID-19 curbs faster than


“We expect the CNY to strengthen further from here in 1H

2023 and revise the 12-month USD/CNY target to 6.65,” analysts

at Morgan Stanley said in a note.

“The strength would be front-loaded, with the CFETS basket

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strengthening further in 1H, before some moderation in 2H in

view of more meaningful outbound travel recovery.”

However, some traders said the yuan’s fast appreciation

since the start of the year might not be sustainable, as gains

were partly the result of seasonal corporate demand.

“The short-term strength might have come to an end. The pace

of the gains was a bit too fast,” said a trader at a local bank.

Chinese exporters usually convert more of their FX receipts

into yuan for various payments, including orders and bonus

handouts, ahead of the week-long Lunar New Year holiday which

starts on Jan. 21.

Separately, three state-owned financial newspapers also

warned that investors should avoid Chinese currency risk and

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adapt to higher foreign exchange volatility this year after the

yuan’s sharp gains.

Some traders said they would look to a speech by Federal

Reserve Chair Jerome Powell later in the session and to U.S.

inflation data later this week, for more clues on the outlook of

the Fed’s rate-hike path.

In global markets, the dollar languished near a seven-month

low against other major currencies, as investors took heart that

the Fed may be nearing the end of its hiking cycle.

By midday, the global dollar index stood at 103.212,

while the offshore yuan was trading at 6.7796 per


The yuan market at 0357 GMT:


Item Current Previous Change

PBOC midpoint 6.7611 6.8265 0.97%

Spot yuan 6.7698 6.773 0.05%

Divergence from 0.13%

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Spot change YTD 1.92%

Spot change since 2005 22.26%


Key indexes:

Item Current Previous Change

Thomson 0.0


CNH index

Dollar index 103.212 103.001 0.2

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2% from official midpoint rate it sets each



Instrument Current Difference

from onshore

Offshore spot yuan 6.7796 -0.14%


Offshore 6.621 2.12%




*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 Winni Zhou and Brenda Goh; Editing by Jacqueline




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