SHANGHAI: China’s yuan strengthened on Monday as the dollar drifted lower on diminished expectations that rate rises by the US Federal Reserve would support further gains, and as investors bet on easing domestic COVID-19 lockdowns.
The Chinese currency nevertheless remains on track for its third consecutive monthly drop, which would be its longest such streak since the first half of 2019.
Even as the greenback has weakened from a 20-year high earlier this month, the yuan’s gains have been hobbled by coronavirus lockdowns disrupting factory activity and paralysing the country’s financial centre, Shanghai.
On Monday, streets in Beijing were busier while Shanghai inched closer to a planned end to a two-month coronavirus lockdown set for Wednesday, though specifics of how the exit would be managed remained unclear.
“The reopening narrative has boosted global risk sentiment, particularly the yuan as hope springs eternal for a return to some semblance of economic normality in the mainland’s services sector,” said Stephen Innes, managing partner at SPI Asset Management.
The results of manufacturing activity surveys due on Tuesday “may provide new clues as to whether economic growth has bottomed out,” analysts at OCBC Wing Hang Bank said in a note.
As reopening hopes support the yuan, traders said cooling expectations of aggressive US interest rate rises would also see the dollar test short-term support.
“Market sentiment is getting a boost by a more obvious improvement of the COVID-19 situation,” said a trader at a foreign bank. “And with US inflation possibly peaking, the Fed may not be so hawkish.”
Data released on Friday showed US consumer prices rising 0.2% in April, following a 0.9% rise in March. As measured by the personal consumption expenditures index, April prices were 6.3% higher than a year earlier.
Before the market open on Monday, the People’s Bank of China set the yuan’s daily midpoint at 6.7048 per dollar, firmer than the previous fix of 6.7387.
Spot market opened at 6.7053 per dollar and firmed to 6.6457, its strongest in a week. At midday it was changing hands at 6.6536, which was 444 pips firmer than Friday’s late session close.
The offshore yuan also hit a one-week high against the dollar, at 6.6590, and was trading at 6.6655 per dollar around midday.
The global dollar index, which tracks the greenback against major peers, was last at 101.551, near one-month lows touched Friday.