China’s yuan inches higher, market awaits Dec PMI to gauge COVID impact

SHANGHAI, Dec 26 (Reuters) – China’s yuan crept higher against the dollar in thin holiday trading on Monday, with investors awaiting data due later this week to gauge the economic impact of Beijing’s decision to dismantle its strict COVID-19 protocols earlier this month. In the spot market, the onshore yuan opened at 6.9900 per dollar and was changing hands at 6.9789 at midday, 129 pips firmer than the previous late session close. Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.9825 per dollar, 15 pips weaker than the previous fix of 6.9810. “The yuan is likely to end the year at current levels and on the firmer side of the key 7 per dollar level,” said a trader at a Chinese bank, noting the market lacked clear guidance with trading levels thin. Trading volume had shrunk to $2.6 billion as of midday, well down on a normal half-day volume of about $15 billion. Meanwhile COVID case numbers are now surging across the country, with the country’s two biggest cities – Shanghai and Beijing – moving closer to living with COVID. Zhejiang, a big industrial province near Shanghai, is battling around a million new daily infections, a number expected to double in the days ahead, the provincial government said on Sunday. Win Thin, global head of currency strategy at Brown Brothers Harriman, warned the economy could “come to a grinding halt this month.” “How long the slowdown is will depend on how the virus spreads but early indications are not good,” he said in a note published late last week. Currency traders also said they would pay close attention to December factory activity data due on Saturday to gauge the scale of disruption to economic activity from the COVID infections spike. “Recent market concern lies in how the broad economy would recover after the pandemic subsides, and the high-frequency economic data could be an important reference,” analysts at CICC said in a note. By midday, the global dollar index stood at 104.325, while the offshore yuan was trading at 6.99 per dollar. The yuan market at 0351 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.9825 6.981 -0.02% Spot yuan 6.9789 6.9918 0.18% Divergence from -0.05% midpoint* Spot change YTD -8.94% Spot change since 2005 18.59% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 104.325 104.314 0.0 *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 morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.99 -0.16% * Offshore 6.8215 2.36% 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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