Yuan inches up on hopes China’s economy is regaining traction

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SHANGHAI — China’s yuan inched higher on

Thursday, shrugging off a broadly stronger U.S. dollar, as

investors hoped upcoming data would show a further recovery in

the Chinese economy after a sharp COVID-induced slump in the

spring.

Official and private business surveys had pointed to

improving conditions in June as lockdowns were lifted in

Shanghai and some other larger cities, but some areas have

recently reported flare-ups in COVID-19 cases again, which could

slow or even stymie a recovery.

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“Markets are awaiting the release of June economic

indicators,” said Ken Cheung, chief Asian FX strategist at

Mizuho Bank, noting Shanghai’s reopening in June after two

months of lockdown should help boost the economy.

“It’s hard to gauge if the rebound is sustainable,” Cheung

added.

China is set to release June FX reserves data later in the

session, with inflation figures due on Saturday. Next week,

credit and trade data will be released, with activity indicators

and second-quarter GDP on July 15.

Prior to the market opening, the People’s Bank of China

(PBOC) set the midpoint rate at 6.7143 per dollar,

firmer than the previous fix 6.7246.

In the spot market, the onshore yuan opened at

6.7098 per dollar and was changing hands at 6.7011 at midday, 57

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pips firmer than the previous late session close.

Foreign investors continued to cut holdings in Chinese bonds

in June but added positions in equities, bucking the trend in

other emerging markets, the Institute of International Finance

(IIF) said on Wednesday.

Wee Khoon Chong, senior market strategist for APAC at BNY

Mellon Markets, said the foreign equity inflows in June

suggested that easing of COVID-related restrictions fostered

rebounds in credit and investment growth.

“This, in our view, suggests an encouraging return of

foreign investors after a directionless first five months of

2022,” he said.

In global markets, the dollar index continued to

hover at a 20-year high against a basket of major currencies,

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driven up by global recession worries and safe haven bid for the

greenback.

A deteriorating inflation situation and concern about lost

faith in the Federal Reserve’s power to make it better prompted

U.S. central bank officials to rally around an outsized interest

rate increase and a firm restatement of their intent to get

prices under control, minutes of the June 14-15 policy meeting

showed.

By midday, the global dollar index traded at 106.867,

while the offshore yuan was trading at 6.7015 per

dollar.

The yuan market at 0454 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.7143 6.7246 0.15%

Spot yuan 6.7011 6.7068 0.09%

Divergence from -0.20%

midpoint*

Spot change YTD -5.16%

Spot change since 2005 23.51%

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revaluation

Key indexes:

Item Current Previous Change

Thomson 103.46 103.38 0.1

Reuters/HKEX

CNH index

Dollar index 106.894 107.096 -0.2

*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 percent from official midpoint rate it sets each

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.7012 0.00%

*

Offshore 6.684 0.45%

non-deliverable

forwards

**

*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 Winni Zhou and Brenda Goh; Editing by Kim

Coghill)