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China’s yuan firms to 3-month high, recovery hopes dilute weak data concerns

HONG KONG: China’s yuan climbed to a three-month high early on Friday, with investors shrugging off weaker economic data and looking toward a recovery as the Chinese authorities unwind COVID-19 curbs.

China reported weak factory-gate and consumer prices for November on Thursday, indicating the surge in COVID cases and downbeat consumer sentiment were still weighing on the world’s second-largest economy.

The producer price index in November fell 1.3% year-on-year, contracting for a second month.

The consumer price index was up 1.6%, weaker than 2.1% in October.

Still, traders appeared to shrug off the data, as they remain optimistic that the worst of China’s economic woes from COVID-19 is over. Friday’s data could also provide reasons for China’s central bank to implement more easing measures, analysts said.

“The yuan has held onto its gains relatively well this week, although on a day-to-day basis it fluctuated a bit after pulling in the (over 1%) gain on Monday,” said Alvan Tan, head of Asia currency strategy at RBC Capital Markets.

The loosening of strict pandemic curbs that hobbled China’s economy was driving the yuan’s resilience, he said. The onshore yuan rose to 6.9300 per dollar in early trade, the strongest since Sept. 13 and is on track to end with a weekly gain.

The spot yuan opened at 6.9500 per dollar and was changing hands at 6.9590 at midday, 60 pips stronger than the previous late session close and near the midpoint.

The People’s Bank of China set the midpoint rate at 6.9588 per US dollar prior to market open, firmer than the previous fix 6.9606. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.

The offshore yuan was trading 0.06% stronger than the onshore spot at 6.9547 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.791, 2.47% away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate. The global dollar index fell to 104.515 from the previous close of 104.774.

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