Market News

China's yuan jumps to 4-month high as property concerns ebb - REUTERS

OCTOBER 19, 2021

SHANGHAI, Oct 19 (Reuters) - China's yuan leapt to a
four-month high against the dollar on Tuesday, aided by market
expectations that the stresses in the domestic property sector
as well as Sino-U.S. tensions are easing.
    The rise in the yuan in onshore and offshore markets
followed weaker-than-expected Chinese economic growth data on
Monday, but after China's central bank calmed markets late last
week saying spillover effects from the China Evergrande Group's
 debt woes were controllable. 
    A couple of other property firms made coupon payments this
week, helping ease some concerns about the embattled and
indebted sector.    
    Qi Gao, Asia FX strategist at Scotiabank, said investors had
drawn confidence from that reassurance from officials at the
People's Bank of China.
    He said the authorities will manage to prevent Evergrande
from being a threat to the financial system.
    The stronger yuan had driven a broader rally in
risk-sensitive currencies in the broader currency market, he
    Currency traders said the yuan was supported by heavy
corporate clients' conversion of their dollars as they took
advantage of broad dollar weakness, after the latter was knocked
back by weak U.S. factory data overnight.
    "I don't see yuan depreciation expectations for the time
being," said Tommy Xie, head of Greater China research at OCBC
    "After all, the fundamentals are still very strong, seen in
the high trade surplus and capital inflows. And companies have a
pile of dollars waiting to be settled."
    Prior to market opening, the PBOC set the midpoint rate
 at 6.4307 per dollar, 7 pips weaker than the previous
fix of 6.43. 
    In the spot market, onshore yuan opened at 6.4250
per dollar and jumped to a high of 6.4105, the strongest level
since June 16 and 189 pips firmer than the previous late session
    The broad dollar index fell to 93.705 from the
previous close of 93.936, while the offshore yuan was
trading around 6.4035 per dollar, a June high. 
    "The recent yuan strength was surprising to some market
participants, including us, given the increasing headwinds for
China growth," said Ken Cheung, chief Asian FX strategist at
Mizuho Bank in Hong Kong.
    But he said the soft gross domestic product data released on
Monday had been expected and priced in and annual growth around
8% remains achievable. 
    "Together with the Phase 1 (trade) deal review with the
U.S., the PBOC may intend to keep the yuan broadly steady in the
near term. After all, the dollar retracement and the broad Asian
currency rally are supportive to the yuan."
    Some market analysts attributed the gains in the yuan to
fading expectations of a reduction to banks' reserve requirement
ratio (RRR), despite the weak third-quarter growth as the
world's second-largest economy suffered power shortages, supply
bottlenecks and sporadic COVID-19 outbreaks.
    And they said the authorities could become uncomfortable
with the yuan's fast appreciation, as the spot price was
approaching the psychologically important 6.4 per dollar level.
    "There was no barrier from the state banks on Tuesday
morning," said a trader at a Chinese bank. "But everyone started
getting nervous about big banks possibly stepping in soon to
trim the gains."


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