The offshore yuan strengthened through the closely watched 7 per-dollar level for the first time since September as Chinese authorities accelerated a shift toward a reopening of the economy.
The currency increased by 0.5% to 6.9859 per dollar, the highest since Sept. 15. Financial hub Shanghai and neighboring Hangzhou have loosened some Covid restrictions after protests against the nation's stringent policies last week.
As officials relaxes their hardline stance on the use of virus curbs, thousands of demonstrators took to the streets in recent weeks to express their anger at the world's second largest economy. That has helped spark a turnaround in the offshore yuan, which slumped to a record low in October, and Chinese equities have rebounded strongly.
Recent public protests against the tight Covid controls have put pressure on the government to hasten its reopening plans, according to Commonwealth Bank strategists led by head of international economics Joseph Capurso. If there is more evidence that China is ready to leave its strict Covid policies, the dollar-yuan can extend its losses this week. Investors are weighing the impact of a robust US jobs report and expectations for a slowing of aggressive Federal Reserve hikes, which have weighed on global markets this year.
After the recent protests, Shanghai joined Shenzhen, Guangzhou, Zhengzhou, and other Chinese cities in moving toward reopening. Most places will no longer require PCR results for access to local public transit and many shared spaces.
The risk of an earlier but managed exit is something that is likely to decline before case numbers go up, according to strategists at Goldman Sachs Group Inc.
Some analysts are cautiously optimistic chasing the yuan, arguing that sustainable gains will only happen if Beijing manages to make a solid economic recovery next year. The upcoming December Politburo meeting, which provides high-level guidelines for economic policy-making, is the next focus for investors.
Although there are positive steps taken, it will take time for China to exit from their zero Covid policy, according to Ho Woei Chen, an economist at United Overseas Bank Ltd. in Singapore. The prolonged property market slump and high Covid infections weigh on the consumption recovery in the near term. These factors may limit the gains in the yuan. With help from Chester Yung and Matthew Burgess.