China's yuan hits 7-per-dollar level on hopes of reopening

SHANGHAI China's yuan bounced past the closely watched 7- per-dollar level on Monday, hitting its strongest since September, as Beijing eased some of its strict COVID 19 curbs, potentially attracting new foreign inflows.

The dollar was boosted by expectations of slower U.S. interest rate hikes, which knocked the dollar index to near five month lows.

Some warn that China's road for economic recovery could be bumpy and that the yuan will remain volatile.

Maybank said that the possibility of policy U-turns or worsening of the infections could be seen as opportunities to short the currency.

The onshore yuan jumped by roughly 1.4 per cent to as high as 6.9507 on Monday morning, its strongest since Sept. 13, following the central bank's firm midpoint guidance.

The yuan jumped by 1.6 per cent last week, its biggest weekly gain since 2005, amid expectations that authorities will loosen strict COVID curbs.

The yuan gained 1.1 per cent to a two-month high of 6.9438 in the offshore market after posting record weekly gains.

Financial hubs in the far west, Shanghai and Urumqi, announced the easing of curbs over the weekend as China tries to make its zero-COVID policy more targeted and less burdensome after unprecedented protests against restrictions.

China's benchmark CSI 300 index jumped nearly 10 per cent in November, as mainland stocks saw net inflows over 60 billion yuan $8.55 billion via the cross-border Stock Connect scheme.

Morgan Stanley upgraded China's equities to overweight, citing several positive developments alongside a clear path to reopening. The Wall Street bank joined a string of global institutions, including UBS and Goldman Sachs, in turning bullish toward China on hopes of an eventual reopening of the economy.

Standard Charted expects that China's real household consumption growth will accelerate to 7 per cent in 2023, from 0.2 per cent in 2022, forecasting that China will remove most COVID restrictions by the second quarter of 2023.

Maybank attributed the strength to the depreciation of the dollar to the strength of the yuan. The dollar index has slumped nearly 9 per cent from its Sept. 28 peak.