China’s yuan was roughly flat versus the dollar on Tuesday in thin trading, as weak industrial profit data offset optimism over the country’s steps to reduce COVID-19 curbs and reopen the economy. The onshore yuan rose as much 0.28% to a near two-week high of 6.9434 per dollar in early morning trade, after China’s central bank set a firmer midpoint rate. But the Chinese currency gave up all the gains by the lunch break, trading around 6.9620 at midday.
The yuan was initially supported by news that China will stop requiring inbound travellers to go into quarantine starting from Jan. 8, representing a major step towards easing COVID curbs on its borders, which have been largely shut since 2020. China’s health authority also said late on Monday that the country’s management of COVID will be downgraded to the less strict Category B from the current top-level Category A.
But the upbeat mood was soon curbed by the latest data showing profits at China’s industrial firms contracted further in the January-November period, when strict COVID-related restrictions disrupted factory activity and supply chains. Industrial profits fell 3.6% during the first 11 months of the year to 7.7 trillion yuan ($1.11 trillion). That compares with a year-on-year drop of 3.0% for January-October.
The data served as a reminder to traders that China’s economy is still expected to struggle over the winter months as much of the population becomes infected with coronavirus and unable to work while recovering. In its 2023 outlook report, Chasing Securities said that an expected economic growth of 5.1% for China next year would provide a solid foundation for the yuan, but conditions are not ripe for an appreciation cycle for the Chinese currency. The brokerage expects the yuan to fluctuate against the dollar next year.
The yuan market at 3:33AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 0.40% 6.9546 6.9825 Spot yuan 0.00% 6.9635 6.9634 Divergence from midpoint* 0.13% Spot change YTD -8.74% Spot change since 2005 revaluation 18.86% *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan * -0.08% 6.9692 Offshore non-deliverable 2.23% forwards 6.8031 ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Shanghai newsroom; Editing by Kenneth Maxwell)