SHANGHAI: China’s yuan rebounded against the dollar on Friday, shrugging off a much weakened official guidance fix, amid market hopes that there will be some relaxation of the country’s strict COVID-19 prevention measures.
China has maintained its zero-COVID strategy this year, curbing the outlook of the world’s second-largest economy.
Hopes that restrictions could ease pushed mainland China and Hong Kong stocks higher, and the spillover effect benefited the currency market, traders said.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.2555 per dollar, 83 pips weaker than the previous fix of 7.2472, and the weakest since Jan. 22, 2008.
In the spot market, the onshore yuan opened at 7.3140 per dollar and touched a three-day high of 7.2611 before changing hands at 7.2640 around midday, 360 pips firmer than the previous late session close.
“Rumors are all over the place these days, but markets really hope there would be some relaxation,” said a trader at a foreign bank.
Hong Kong and China stocks jumped on Tuesday after rumours based on an unverified note circulating on social media that China was planning a reopening from strict COVID curbs in March. A Chinese foreign ministry spokesman said at the time he was unaware of the situation.
Despite Friday’s gains, the yuan looked set for its fourth straight weekly loss, with some analysts attributing this to the economy’s persistent weakness. The yuan is down 0.2% for the week.
“Domestic pressure to revive the economy is likely to grow and the growth imperative suggests that further exchange rate depreciation may be expected, helping to serve as a pressure valve to bolster the economy,” analysts at RBC Capital Markets said in a note.
They also revised down their year-end yuan forecast to 7.35 per dollar from 7.20 previously.
By midday, the global dollar index had fallen to 112.596 from a previous close of 112.93, while the offshore yuan was trading at 7.2761 per dollar.