China’s yuan firms as Shanghai sets out clearer lockdown timetable

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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

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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

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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

quarantine zones.

But given ongoing near-term pressure on the yuan, some

traders and analysts said authorities could still resort to

policy tools.

“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

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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

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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

at 6.8208.

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%


Key indexes:

Item Current Previous Change

Thomson 100.42 100.3 0.1


CNH index

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



Instrument Current Difference

from onshore

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




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