Yuan rises to two-week high, set to snap two months of losses

Credit: REUTERS/Kim Kyung Hoon

The yuan rose to a two-week high against a softer dollar on Thursday and is set for its first monthly gain in three, as investors took heart in an improving Chinese economy and easing measures to contain the coronavirus as infections ease.

SHANGHAI, April 30 (Reuters) - The yuan rose to a two-week high against a softer dollar on Thursday and is set for its first monthly gain in three, as investors took heart in an improving Chinese economy and easing measures to contain the coronavirus as infections ease.

The dollar weakened against a basket of major currencies after the U.S. Federal Reserve left the door open to more monetary easing and dampened expectations for a quick economic recovery from the coronavirus pandemic. FRX/

"Losses in the dollar index dragged the (USD/CNY) midpoint lower," said a trader at a Chinese bank, adding the strength in the official guidance rate also supported spot prices.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 7.0571 per dollar, 133 pips or 0.19% firmer than the previous fix of 7.0704.

In the spot market, onshore yuan CNY=CFXS opened at 7.0652 per dollar and rose to a high of 7.0581 at one point, the strongest level since April 15.

At midday, spot yuan was changing hands at 7.0586, 179 pips firmer than the previous late session close.

If the onshore yuan retains the gains at the late night close, it would have gained 0.32% to the dollar for the month, snapping two straight months of losses.

Traders said the yuan gained some support from April manufacturing data that showed the economy was slowly getting back on track, despite export orders shrinking sharply due to global lockdowns.

"All told, there appears to be some improvement in the Chinese economy in the second quarter, but a full recovery is not in sight," said Zhou Hao, analyst at Commerzbank in Singapore, said in a note.

Stephen Innes, chief global markets strategist at AxiCorp, said the deterioration in the Caixin survey, which gauges manufacturing activity at smaller businesses, was "not as severe as the extreme contractions seen in other countries".

Separately, some traders said continued improvement in China's containment of the COVID-19 respiratory disease also supported market sentiment.

Beijing's municipal government said on Wednesday it will lower its COVID-19 emergency response level effective as of 0000 hours on Thursday, removing quarantine requirements for some people arriving from other low-risk parts of the country.

Chinese financial markets will be shut from Friday for the Labour Day holiday. Trading will resume next Wednesday.

The global dollar index =USD rose to 99.62 at midday from the previous close of 99.492.

The offshore yuan CNH=D3 was trading at 7.064 per dollar as of midday.

The yuan market at 0427 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

7.0571

7.0704

0.19%

Spot yuan CNY=CFXS

7.0586

7.0765

0.25%

Divergence from midpoint*

0.02%

Spot change YTD

-1.35%

Spot change since 2005 revaluation

17.25%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

93.45

93.3

0.2

Dollar index

99.62

99.492

0.1

*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 CNH= *

7.064

-0.08%

Offshore non-deliverable forwards CNY1YNDFOR= **

7.1203

-0.89%

*Premium for offshore spot over onshore CNY=CFXS

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong)

((winni.zhou@thomsonreuters.com; +86 21 2083 0100; Reuters Messaging: winni.zhou.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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