China’s Yuan Falls On COVID-19 Outbreaks In Fujian, Disappointing Data

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The yuan eased against the dollar on Wednesday, as outbreaks of coronavirus Delta variant
infections raised concerns over China’s economic recovery.
The southeastern province of Fujian reported its fifth straight day of new local COVID-19 infections, though they were confined to three coastal cities where a total of 152 cases had been reported between Sept. 10-14. Some analysts reckoned China’s tough measures to eradicate the virus, rather than try to adapt to living with it, as many other countries are doing, could handicap the economy.

“We reckon that China’s zero-Covid strategy could be increasingly costly for the Chinese economy,” said Lu Ting, chief China economist at Nomura. August activity indicators came in weaker than expected,
with industrial output rising at the weakest pace since July 2020, while the growth of retail sales also slowed significantly.

Marco Sun, chief financial markets analyst at MUFG Bank also noted three high-frequency indicators including bank lending, power generation and rail freight transportation all slowed in August, suggesting that the economy’s recovery in the second half of this year was “facing multiple obstacles”.
The onshore spot yuan opened at 6.4430 per dollar and was changing hands at 6.4421 at midday, 39 pips softer than the previous late session close. Separately, China’s central bank rolled over maturing
medium-term loans earlier in the session, while keeping the interest rate unchanged for the 17th month in a row.

“The full rollover of the MLF provided by the PBOC this morning suggests that some liquidity support is assured but credit growth is strong enough for some ammunition to be kept for the later months,” analysts at Maybank said in a note.  Prior to market opening, the People’s Bank of China (PBOC)
set the midpoint rate at 6.4492 per dollar, 8 pips firmer than the previous fix of 6.4500, the strongest since June 18. By midday, the global dollar index fell to 92.637 from the previous close of 92.672, while the offshore yuan was trading at 6.439 per dollar.

– Reuters

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