China’s yuan firms as easing COVID curbs offset dismal export data

HONG KONG: China’s yuan firmed against the US dollar on Wednesday as investors shrugged off much weaker-than-expected export and import data and awaited a government announcement on more COVID-19 easing measures that could revive the battered economy.

China may announce 10 new national easing measures as early as Wednesday, two sources with knowledge of the matter told Reuters.

After President Xi Jinping chaired a meeting of the Communist Party’s politburo, state media fed the growing sense of anticipation by reporting that China should seek “to better coordinate epidemic policies with economic and social development”.

While analysts warn that unwinding the country’s strict zero-COVID policies will take some time and is not without risk, news of easing restrictions in some cities in recent days has given a boost to ailing Chinese assets.

The offshore yuan was trading 0.14% stronger than the onshore spot at 6.97 per dollar on Wednesday.

“News flow about further easing of measures could still have a positive impact on the yuan. What is capping further upside of the onshore yuan however, is that China’s export data would likely show further weakness,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.

The spot yuan opened at 6.9888 per dollar and was changing hands at 6.9790 at midday, 160 pips stronger than the previous late session close and -0.26% away from the midpoint.

China’s yuan slips, traders wary of reopening risks

The People’s Bank of China set the midpoint rate at 6.9975 per US dollar prior to market open, weaker than the previous fix 6.9746.

The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.Since the month of November, the onshore yuan has gained about 4% against the US dollar. Tan said the yuan’s gain last month was caused more by the softening of the dollar index.

Highlighting the increasing economic blow from flagging domestic and export demand, China reported bleak November trade data on Wednesday, which showed that exports contracted 8.7% from a year earlier, while imports tumbled 10.6%, both missing expectations by large margins, customs data showed.

The global dollar index fell to 105.55 from the previous close of 105.578.

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 6.817, 2.65% away from the midpoint.

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