China’s yuan under pressure as COVID surge reignites growth fears

By Georgina Lee HONG KONG, Dec 23 (Reuters) – China’s yuan came under pressure on Friday, posting modest gains after previously hitting a three-week low in offshore trading, as Shanghai’s worsening COVID outbreak raised concerns reignited the slump in growth in the world’s second-biggest economy. The offshore yuan weakened to 7.0136 per dollar, its weakest since December 2, before reversing some losses to 6.9974, up 0.2% from 7.0118 in the previous trading session is equivalent to. It traded 0.17% weaker than the onshore spot, which also posted meager gains ahead of the final week of the year. A Shanghai hospital has warned its staff to prepare for a “tragic battle” with COVID-19 as China abandons its zero-COVID policy and many local businesses are forced to close when their staff fall ill. Shanghai Deji Hospital estimated about 12.5 million would become infected in China’s main trade hub by the end of the year, according to its WeChat publication late Wednesday. “With the resurgence of cases of China exiting the zero-COVID regime, it has wreaked a lot of destruction on both the demand and supply sides of its economy,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank . “This will likely weigh on gross domestic product growth in the fourth quarter.” The spot yuan opened at 6.9966 per dollar and changed hands at 6.9855 midday, up 21 pips from the previous late close and 0.06% from the midpoint. The People’s Bank of China put the pre-open mid-rate at 6.981 per dollar, weaker than the previous benchmark of 6.9713. The spot rate is currently allowed to trade within a 2% range of the official fixing on any given day. China is due to report full-year industrial earnings through November next week. In the first 10 months of 2022, industrial profits fell 3% year-on-year. The global dollar index fell to 104.336 from the previous close of 104.433. The strength in the dollar index, which tracks a basket of six currencies, came amid data on Thursday that showed the US economy recovered faster than previously thought in the third quarter. This fueled market expectations that the US Federal Reserve would remain on its aggressive tightening trajectory next year. One-year non-deliverable offshore forward contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.8275, 2.25% off the median. One-year NDFs are settled at the midpoint, not the spot rate. The Yuan Market at 3:19 GMT: ONSHORE SPOT: Position Current Previous Change PBOC Midpoint -0.14% 6.981 6.9713 Spot Yuan 0.03% 6.9855 6.9876 Deviation from midpoint* 0, 06% Spot Change YTD -9.03% Spot Change Since Revaluation 2005 18.48% OFFSHORE CNH MARKET Instrument Current Difference to Onshore-Offshore Spot Yuan* -0.17% 6.9974 Offshore Non-Deliverable Dates 2.25% 6th .8275 ** *Premium for offshore spot versus onshore midpoint. . (Reporting by Georgina Lee; Editing by Sam Holmes)