SHANGHAI: China’s yuan eased against the dollar on Monday after hitting its highest in over a week in the previous session, as Beijing vowed to continue with its strict zero-COVID strategy, dashing market hopes that some restrictions could be eased soon.
Such market hopes had helped the onshore yuan post its biggest daily gain on Friday, but the currency pared back some of those gains after health officials said on Saturday China will persevere with its “dynamic-clearing” approach to COVID-19 cases as soon as they emerge.
Downbeat trade data added to signs of a slowing economy, also weighing on market sentiment.
“I think there are early signs that the zero-COVID policy may be relaxed down the road, but the reopening will be a long and gradual process,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The significant change of policies will likely to happen next year rather than this year.”
Prior to market opening on Monday, the People’s Bank of China (PBOC) set the midpoint rate at 7.2292 per dollar, 263 pips or 0.36% firmer than the previous fix of 7.2555.
In the spot market, the onshore yuan slipped from a high of an over one-week high of 7.17 per dollar hit on Friday to trade at 7.2126 by midday, 199 pips weaker than the previous late session close.
The government’s commitment to its zero-COVID strategy, recent outbreaks across the country and downbeat economic data have all hit the yuan, said a trader at a foreign bank.
China reported on Monday 5,496 new locally transmitted COVID-19 cases for Nov. 6, the highest since May 2, when the country’s commercial capital of Shanghai was put under a crushing lockdown amid its worst outbreak.
Meanwhile, data showed exports and imports unexpectedly contracting in October, the first simultaneous slump since May 2020, as surging inflation and rising interest rates hammered global demand while new COVID-19 curbs at home disrupted output and consumption.
“The trade figures bode ill on China Q4 growth outlook,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
“If investors remained fixating on the reopening trade, the weak China data could be interpreted as positive news to pressure China to tweak its COVID policy.”
By midday, the global dollar index rose to 111.036 from the previous close of 110.877, while the offshore yuan was trading at 7.2176 per dollar.