SHANGHAI The yuan touched a 1 -- 1 2 -- week high against the dollar briefly before giving back all the gains by midday on Thursday as Chinese cities tightened curbs against growing COVID outbreaks, adding to pressure on the economy.
The yuan fell to a near 15 year low on Tuesday before bouncing to book sharp gains on a day after, as cautious traders and companies tried to liquidate long dollar positions after state bank dollar selling to prop up the local unit.
Before market opening on Thursday, the People's Bank of China PBOC set the midpoint rate at 7.1570 per dollar, 68 pips firmer than the previous fix 7.1638.
The midpoint was in line with market projections and effectively guided the spot prices closer to the official guidance rate, according to traders and analysts. Thursday's fixing was 3 pips firmer than the 7.1573 estimate of Reuters.
Christopher Wong, FX strategist at OCBC Bank, said that the official midpoint helped to stabilise sentiment and reaffirmed the view that disorderly or one-off sharp adjustment is not what the Chinese policymakers want.
The onshore yuan opened at 7.1632 per dollar and strengthened to a high of 7.16 at one point, the strongest level since Oct. 18. It was changing hands at 7.2165, 455 pips or 0.6 per cent less than the previous late session close by midday.
While the panic selling in RMB and Chinese assets appears to be over, we expect the CNH and CNY spot to enter a range-trading mode between 7.1 and 7.3 in the short term and the USD movement as well as updates on the China policy roadmap under new leadership to be the key driver for the RMB, said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
Some traders and analysts said yuan sentiment was boosted early in the day due to mounting market expectations that the U.S. Federal Reserve will tone down its aggressive stance on interest rate hikes, which caused a pullback in the dollar.
The companies usually have higher demand for various payments at the end of the year.
Some currency traders believe that the conversions could be a source of additional support for the local unit, as households and companies have started to settle their FX receipts after getting hold of such conversions for better prices.
Some analysts said that the struggling economy is likely to continue to pressure the yuan.
Alvin Tan, head of Asia strategy at RBC Capital Markets said that the medium-term uptrend in USD RMB remains in place because of China's economic headwinds, but the authorities will continue to try to manage the move.
The economy rebounded at a faster than anticipated rate in the third quarter, but a more robust revival in the long term will be challenged by persistent COVID 19 curbs, a deep property slump and global recession risks.
China has reported a third day of more than 1,000 new COVID cases nationwide, a modest tally compared to the tens of thousands per day that sent Shanghai into a full-blown lock-down earlier this year, but enough to trigger more restrictions and curbs across the country.
Cities from Wuhan in central China to Xining in the northwest are doubling down on COVID 19 curbs, sealing up buildings, locking down districts and throwing millions into distress in a scramble to halt widening outbreaks.
In January-September, profits at big industrial firms fell at a faster rate than in the January-September period, a worrying sign.
The global dollar index was at 109.769 by midday, while the offshore currency was trading at 7.2313 per dollar.
The spot yuan is trading stronger than the midpoint. The exchange rate can rise or fall 2 per cent from the official midpoint rate it sets each morning, according to the People's Bank of China PBOC.
Non-deliverable forwards are settled against the midpoint, which is why the figure reflects the difference between PBOC's official midpoint.