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China yuan November rally ends: CNH falls as Covid fear intensifies – again

By Adrian Holliday

12:45, 21 November 2022

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In this article:
1.04206 USD
0.00842 +0.820%
US Dollar Index
105.5551 USD
-0.854 -0.800%
137.797 USD
-0.71 -0.510%
7.05092 USD
-0.09075 -1.270%

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Market stall worker readies Xi Jinping posters
A drawing featuring China's President Xi Jinping at market; CNH bears Covid pressure again – Photo: Getty

A week ago a dollar bought CNY 7.0250 but this morning USD was buying closer to CNY 7.17. The yuan’s 4%-plus November push higher has been roughly pushed back to less than 1% – Covid hope dashed yet again.

Judging the ship’s roll the People’s Bank of China (PBOC) kept its loan prime rates unchanged today – the one year loan prime rate remains pegged at 3.65% with the five year nailed still at 4.30% – for a third consecutive month.

That could change within a month if the darkening economic weather worsens, though Beijing is ramping up support to better quality property developers – the country receives around 25% of its GDP from the property market – to ease the deep liquidity tensions. 

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Yuan is facing a USD turning tide – again

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China is squeezed tight by central bank rate differentials. The gap between the PBOC and the Fed is at its most extreme for 15 years leaving investors free to take better yield rates, especially from the US. 

PBOC snipped key rates in August to boost credit demand and support its still COVID-shackled economy, but this applied more USD/CHN pressure. 

The market had been pinning hopes on a Chinese re-opening to help ease global supply chain problems and kickstart growth in the world’s second largest economy says AJ Bell’s Russ Mould.

“However, renewed outbreaks of Covid have seen some restrictions return and helped dampen sentiment, with oil prices also lower.”

Equities futures were in the red this morning said Equals Money market strategist Thanim Islam “so we could be in for a risk-off week as markets reassess recent optimism of China easing their Covid policy”.


0.68 Price
+1.520% 1D Chg, %
Long position overnight fee -0.0017%
Short position overnight fee 0.0002%
Overnight fee time 22:00 (UTC)
Spread 0.00006


166.29 Price
+0.370% 1D Chg, %
Long position overnight fee 0.0000%
Short position overnight fee -0.0001%
Overnight fee time 22:00 (UTC)
Spread 0.035


1.04 Price
+0.820% 1D Chg, %
Long position overnight fee -0.0028%
Short position overnight fee 0.0008%
Overnight fee time 22:00 (UTC)
Spread 0.00006


137.80 Price
-0.510% 1D Chg, %
Long position overnight fee 0.0015%
Short position overnight fee -0.0042%
Overnight fee time 22:00 (UTC)
Spread 0.010

Covid re-think

More hawkish-sounding words from James Bullard, president of the St Louis branch of the Fed, is spurring DXY, again: Bullard thinks Fed rates could yet hit 5.25%, which is higher than market expectations.

MUFG Bank currency analyst Lee Hardman says the currency tensions shows how premature, still, it is to expect a shift away from China’s hardline zero-COVD strategy. At the very least it’s stately progress. 

“According to reports such a shift is unlikely until around Q2 of next year at the earliest and will be dependent on vaccine roll-out to provide better protection against the spread of COVID. The US dollar will derive more support in the near-term if there is further reversal of recent optimism.”

Pumping USD?

  • Shijiazhuang, home to around 11m, has forbidden residents in areas deemed high risk from leaving their homes. In principle, everyone is advised to stay at home.
  • A mass testing exercise will be undertaken in six major districts. 
  • The new restrictions followed a jump in new COVID cases – to 641 on Sunday. Beijing has reported its highest number of new cases at 951 on Sunday, since September 2021, according to some tracking estimates.

Capital Economics says that though the Fed is near the scrag end of the rate hike cycle “we expect the dollar to extend its gains as the global economy slumps into recession and economic growth slows more sharply in Europe and Asia than in the US”. 

“We [still] forecast the DXY index to approach its 2002 peak of 120 in the first half of 2023.”

FX strategist and finance consultant at Keirstone, Francis Fabrizi 

  • The dollar gained strength against USD/CNH last week after price failed to break below the 7.0210 support level. 
  • “Price has continued to rise this morning and is attempting to push above 7.1780. If it manages to break and hold above this level, I believe 7.2080 will be the next target.”
  • “If sellers take control again at 7.1780, it is possible price will fall back towards 7.1170.”
  • “As far as the weekly timeframe goes, USD/CNH is still in a bullish trend: price is trying to push higher after last week’s temporary pullback. It is likely 7.3750 will be the long term target if price remains bullish.”

Around 1pm DXY was 0.82% up at 107.45 and GBP/USD was 0.66% lower at 1.1807. EUR/USD was 0.80% down at 1.0244 while USD/JPY shifted 1.1% up at 141.91.


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