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Chinese yuan rises on stabilized bond market, higher seasonal corporate demand

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SHANGHAI — China’s yuan strengthened

against the dollar on Friday, reversing two days of losses,

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recovering after bond market woes ebbed and higher seasonal

corporate demand for the local currency lent support.

The government bond market stabilized on Friday after

posting its worst single-day selloffs in two years earlier this

week, with risk appetite boosted amid rising expectations that

China will gradually ease its strict COVID-19 restrictions and

official moves to support the troubled property sector.

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

(PBOC) set the midpoint rate at a week-low of 7.1091

per dollar, 436 pips or 0.6% weaker than the previous fix of

7.0655.

In the spot market, the onshore yuan opened at

7.1318 per dollar and was changing hands at 7.1255 at midday,

296 pips firmer than the previous late session close.

Despite the gains on Friday, the local currency is on course

for its first weekly loss in three, falling about 0.4% versus

the dollar.

Stephen Innes, managing partner at SPI Asset Management,

said markets were super-sensitive around liquidity in government

bond markets following Britain’s experience in

September-October.

“Any liquidity deterioration in CGBs (Chinese government

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bonds) should manifest in CNH (offshore yuan) weakness and a

negative impact on A-shares,” Innes said.

Some currency traders said the yuan strength on Friday also

came as companies have started to convert foreign exchange

receipts into the local currency for various needs and

administrative requirements towards the year-end.

However, gains in the yuan were limited by worries over

recent rises in domestic COVID outbreaks across the country.

The southern Chinese city of Guangzhou is setting up

makeshift hospitals and quarantine sites with capacity for

nearly 250,000 beds for COVID infections, officials said on

Thursday, as cases across the country hit their highest level

since April.

“The risk of further COVID restrictions and associated

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disruptions are growing as we approach winter,” said Alvin Tan,

head of Asia FX at RBC Capital Markets.

“Hence, the near-term risk is actually of more social

restrictions, with associated negative effects on economic

activity.”

By midday, the global dollar index fell to 106.374

from the previous close of 106.694, while the offshore yuan

was trading at 7.131 per dollar.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 7.1091 7.0655 -0.61%

Spot yuan 7.1255 7.1551 0.42%

Divergence from 0.23%

midpoint*

Spot change YTD -10.81%

Spot change since 2005 16.15%

revaluation

Key indexes:

Item Current Previous Change

Thomson 0.0

Reuters/HKEX

CNH index

Dollar index 106.374 106.694 -0.3

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

indicates that spot yuan is trading stronger than the midpoint.

The PBOC allows the exchange rate to rise or fall 2 percent from

official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 7.131 -0.08%

*

Offshore 6.9535 2.24%

non-deliverable

forwards

**

*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 Kenneth

Maxwell)

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