SHANGHAI — China’s yuan firmed on Tuesday
from near 20-month lows a day earlier, as the country’s largest
city moved closer to lifting stifling lockdowns and investors
reconsidered the impact of U.S. rate increases on a high-flying
After watching the yuan slump nearly 7% against the dollar
since the end of March, traders said further sharp depreciation
was unlikely, though the pressures that led to the drop remain.
Domestically, a gloomy economic picture made worse by
COVID-induced lockdowns and mobility restrictions have weighed
on the yuan, but monetary authorities have stopped short of
aggressive policy easing. On Monday the People’s Bank of China
(PBOC) left its medium-term lending rate unchanged.
“The PBOC appears reluctant to engage in strong and broad
steps … The bank’s cautious approach is possibly a response to
the yuan’s weakness and an increase in inflation,” said Matthew
Ryan, senior market analyst at Ebury.
In the latest iteration of more targeted support policies,
China’s state planner said Tuesday that it would strengthen
support for manufacturers, the service sector and small firms to
help soften the impact of COVID-19 curbs.
And offering some hope to a battered economy, the financial
hub of Shanghai on Tuesday set out its clearest timetable yet
for exiting a lockdown now in its seventh week, as it reported
three consecutive days with no new COVID-19 cases outside
But given ongoing near-term pressure on the yuan, some
traders and analysts said authorities could still resort to
“The dislocation of economic fundamentals between China and
the U.S. has been more obvious in the second quarter and there
is still room for yuan depreciation in the short term. But we
can’t rule out that the central bank will resort to policy
measures to ease the devaluation,” said a trader at a Chinese
Ming Ming, chief macro analyst at CITIC Securities, said
that the central bank has a “rich policy toolbox” to handle
exchange rate volatility, and could use policy-level regulation
to rein in rapid yuan depreciation caused by a stronger dollar.
In the longer term, stabilizing economic fundamentals in
China and a weaker greenback could help the yuan re-emerge
stronger, he said.
Expectations that the Federal Reserve will continue to raise
rates to cool stubbornly persistent inflation lifted the
greenback to its firmest point in 20 years on Monday. But the
currency pulled back on Tuesday as traders bet aggressive
tightening could drag on longer-term growth.
The People’s Bank of China set the yuan’s daily midpoint
at 6.7854 per dollar, firmer than Monday’s fix of
Spot yuan opened at 6.7770 per dollar and traded
at 6.7794 at midday, 76 pips firmer than Monday’s late session
close. The offshore yuan firmed to 6.7888 per dollar.
Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan’s value, traded
The yuan market at 4:22AM GMT:
Item Current Previous Change
PBOC midpoint 6.7854 6.7871 0.03%
Spot yuan 6.7794 6.787 0.11%
Divergence from -0.09%
Spot change YTD -6.26%
Spot change since 2005 22.08%
Item Current Previous Change
Thomson 100.42 100.3 0.1
Dollar index 104.197 104.187 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
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.7888 -0.14%
Offshore 6.8208 -0.52%
*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 Andrew Galbraith in Shanghai and Xiao Han in