SHANGHAI- China’s yuan inched higher against the dollar on Monday, buoyed by corporate demand for the Chinese currency as workers started to slowly return to work amid the coronavirus epidemic.
However, strength in the yuan was capped by persistent worries over the economic toll from the spreading coronavirus outbreak that has killed more than 900 people, passing the numbers killed globally by SARS in 2002/2003.
Several Chinese cities remain locked down while the Lunar New Year holiday, due to finish at the end of January, was extended to contain the spread of the virus.
Tommy Xie, head of Greater China research at OCBC Bank, said markets will pay attention to “whether we are going to see the second wave contagion after the return of migrant workers to factories and offices in tier one and two cities”.
Onshore yuan opened at 7.0017 per dollar and was changing hands at 6.9900 at midday, 110 pips firmer than the previous late session close.
Prior to market opening on Monday, the People’s Bank of China (PBOC) set the midpoint rate at 6.9863 per dollar, 95 pips or 0.14 percent weaker than the previous fix of 6.9768.
As many people returned to work and businesses resumed operations, some traders said dollar supply from corporate clients started to emerge in the currency market.
Such dollar selling pushed the yuan’s value higher on Monday morning, while trading also became more active. However, several traders said most banks continued to adopt a split-shift policy this week to limit the number of staff on the trading desk.
“Traders’ interests in building fresh positions for their proprietary accounts remained low,” said a dealer at a Chinese bank.
Separately, China’s January consumer inflation hit a more than eight-year high of 5.4 percent from a year earlier, surpassing a 4.9 percent rise tipped by a Reuters poll of analysts. The data had limited impact on the currency market.
Analysts and traders widely believe that rising consumer prices will not deter the central bank from easing monetary policy to support the economy.
“After the 2019-nCoV outbreak, we revised down our Q1 real GDP growth and forecast for China sharply, which in turn reduced our 2020 full-year growth forecast from 5.9 percent to 5.5 percent,” economists at Goldman Sachs said in a note dated Feb. 7.
The global dollar index fell to 98.647 at midday from the previous close of 98.684.
The offshore yuan was trading at 6.994 per dollar as of midday. — Reuters
