China’s yuan eases, set for third straight monthly loss

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SHANGHAI — China’s yuan eased against the

dollar on Tuesday, as better-than-expected factory manufacturing

data and Shanghai’s exit from a two-month COVID lockdown failed

to offset investor concerns over a persistent economic slowdown.

Factory activity contracted at a slower pace in May as

COVID-19 curbs in major manufacturing hubs were relaxed, but

movement controls still depressed demand and disrupted

production, weighing heavily on the economy in the second

quarter.

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Analysts at Citi noted that the data should help market

sentiment but added that further policy support may be needed.

“Together with lingering uncertainty from zero-COVID

strategy and high level of unemployment, only a weak bottoming

of growth may be expected in May,” they wrote in a note.

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

(PBOC) set the midpoint rate at a near one-week high

of 6.6607 per dollar, 441 pips or 0.66% firmer than the previous

fix at 6.7048.

In the spot market, onshore yuan opened at 6.6803

per dollar and was changing hands at 6.6678 at midday, 63 pips

weaker than Monday’s late session close.

If the yuan finishes the late night session at the midday

level, it would have fallen 0.88% against the dollar in May,

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booking the third straight monthly loss.

Currency traders said domestic COVID developments have

driven moves in the yuan and market sentiment in May.

Shanghai on Monday announced an end to its two-month long

COVID-19 lockdown, allowing the vast majority of people to leave

their homes and drive their cars from Wednesday.

Traders said volatility in the yuan was higher over the last

two months as lockdowns in cities including the financial hub of

Shanghai forced most market participants to work from home.

“Liquidity became low, and that amplified volatility and

price moves,” said a trader at a foreign bank, adding the

situation should improve once they were able to return to the

office.

“We expect USD/CNY to range trade in the near term, given a

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mixed bag of drivers and the zero-COVID policy being a key

uncertainty,” analysts at ANZ said in a note.

“The CNY is likely to resume gradual appreciation in the

latter part of 2022.”

By midday, the global dollar index fell to 101.645

from the previous close of 101.668, while the offshore yuan

was trading at 6.6779 per dollar.

The yuan market at 0322 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.6607 6.7048 0.66%

Spot yuan 6.6678 6.6615 -0.09%

Divergence from 0.11%

midpoint*

Spot change YTD -4.69%

Spot change since 2005 24.13%

revaluation

Key indexes:

Item Current Previous Change

Thomson 100.45 100.53 -0.1

Reuters/HKEX

CNH index

Dollar index 101.645 101.668 0.0

*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 6.6779 -0.15%

*

Offshore 6.7018 -0.61%

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 Andrew Galbraith; Editing by

Sonali Desai)