SHANGHAI: China’s yuan eased against the dollar on Thursday, as signs of further deterioration in economic activity hurt investor confidence, even as the central bank lifted its daily guidance for the currency to a new three-month high.
The economy lost more steam in November as factory output slowed and retail sales extended declines, both missing forecasts and clocking their worst readings since May. The two sectors were hobbled by surging COVID-19 infections and widespread curbs on movement.
“As China reopens its economy, the economic activities inevitably slow, but experience from other countries (shows) this slowdown is temporary,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The reopening is happening much faster than the market expected two months ago, hence the transition period is likely to be shorter,” he added.
Before the market opened, the People’s Bank of China (PBOC) set the midpoint rate at a fresh three-month high of 6.9343 per dollar, 192 pips or 0.28% firmer than the previous fix, 6.9535.
In the spot market, the onshore yuan opened at 6.9499 per dollar and was changing hands at 6.9590 at midday, 70 pips weaker than the previous late session close.
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“The COVID developments have a great impact on the economy, and it’s hard to predict how long it will last,” said a trader at a foreign bank. “The market confidence is very weak now.”
Beijing has made the most significant relaxation of its COVID-19 controls since the pandemic erupted three years ago. Worsening numbers of infections across the country have prompted concern over greater disruption to a broad range of economic activity.
“Looking ahead, while the move away from zero-COVID lays the groundwork for an eventual recovery in activity down the line, the transition period will prove quite disruptive,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
Traders and analysts said they would shift their attention to the annual Central Economic Work Conference, where top leaders are due to determine the main economic agenda for next year.
Separately, the PBOC also ramped up cash injections into the banking system on Thursday, while keeping an interest rate on medium-term policy loans unchanged for the fourth straight month, to keep liquidity conditions ample towards the year-end.
In global markets, the Federal Reserve delivered a 50-basis-point interest rate rise overnight, as expected, and projected more rate rises next year even as the economy slips towards a possible recession.
As midday, the global dollar index had risen to 103.837 from the previous close of 103.77, while the offshore yuan was trading at 6.9618 per dollar.
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