Yuan soars, but gains limited by concerns over Delta outbreaks

0
    SHANGHAI, Aug 4 (Reuters) - The yuan edged up against a
weaker U.S. dollar on Wednesday, but gains were capped by
investor worries over widening outbreaks of the highly
contagious Delta variant in China and their potential impact on
economic growth in the second half of the year.
    China reported on Wednesday 96 new COVID-19 cases for Aug.
3. Although the number of cases remained small in absolute terms
compared with other economies, the Delta coronavirus variant has
been detected in at least a dozen cities, including big ones
such as Beijing, Wuhan and Chongqing.
    Policy insiders and analysts told Reuters that China was
poised to quicken spending on infrastructure projects while the
central bank would support with modest easing steps, as risks
from the Delta variant and flooding threaten to slow the
economic recovery.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.4655 per dollar, 45 pips
or 0.07% weaker than the previous fix of 6.461.
    In the spot market, onshore yuan opened at 6.4652
per dollar and was changing hands at 6.4608 at midday, 92 pips
firmer than the previous late session close.
    Traders said the slightly firmer yuan was reflecting a
falling dollar in overseas market, but the domestic virus
outbreaks have triggered risk aversion sentiment in the market.
    A trader at a foreign bank said the yuan remained rangebound
 on Wednesday morning as investors wait for news of specific
measures that policymakers would roll out to prop up the
economy.    
    "Notwithstanding the stability in RMB spot, we think the
underlying positive drivers for the RMB continue to be
undermined," strategists at OCBC Bank said in a note. 
    "Any market expectations of PBOC rate hikes were replaced
with reserve requirement ratio (RRR) cut expectations. These
negatives weigh on the RMB at this point, and informs our bias
for a higher USD/CNH."
    A number of global investment banks including Goldman Sachs,
ING, Standard Chartered and Pinpoint Asset Management saw
chances for another RRR cut in the remainder of this year.
    The PBOC delivered an unexpected broad-based RRR cut in
July, with many market analysts and participants interpreting it
as a fine-tuning liquidity move.
    In the global markets, the dollar was pinned near recent
lows against other currencies, as traders awaited U.S. jobs data
for a guide to the rates outlook.
    The global dollar index fell to 92.002 at midday from
the previous close of 92.036, while the offshore yuan
was trading at 6.458 per dollar. 
    
    The yuan market at 0343 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4655   6.461     -0.07%
                                       
 Spot yuan          6.4608   6.47      0.14%
                                       
 Divergence from    -0.07%             
 midpoint*                             
 Spot change YTD                       1.04%
 Spot change since 2005                28.10%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         98.29       98.3      0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.002      92.036    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% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.458     0.04%
        *                        
 Offshore              6.6318    -2.51%
 non-deliverable                 
 forwards                        
               **                
 
*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 Winni Zhou and Andrew Galbraith; Editing by Kim
Coghill)
  

Leave A Reply

Your email address will not be published.