Scan to Download ios&Android APP

Yuan rises as signs of lockdowns easing emerge

12:39, 27 May 2022

Share this article

Have a confidential tip for our reporters?

Health workers outside a community in Beijing that is locked down
While signs are emerging that lockdowns maybe eased in Shanghai, new infections in Beijing could see tighter restrictions in the capital – Photo: Getty Images

The Chinese offshore yuan (CNH) made gains against the US dollar as the first signs of easing of the country’s strict Coivd-19 lockdown begin to emerge. 

On Friday, the USD/CNH exchange rate was down 0.71% to 6.71, ahead of the release of the purchasing managers’ index (PMI), a measure of a country’s economic activity, data next week. PMI data is expected to be weak, with some predicting economic activity levels down to levels seen before the pandemic. 

USD/CNH exchange rate

Economic activity keeps falling

“Our China Activity Proxy (CAP) suggests that all of China’s pandemic-era growth has been reversed by recent lockdowns, with output in April no higher than during 2019,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note. 

“Activity should start to rebound this month on the back of easing restrictions. But the recovery is likely to be lacklustre,” he added. 

Worryingly, however, Capital Economics finds that domestic demand has already been severely hit by the Omicron wave of Covid-19 in China. 

 

Domestic demand already down

“The main reason that goods are piling up at Chinese factories is that while lockdowns have had a negative impact on factory output, especially in Shanghai, the hit to demand has been even larger. Strict movement controls and the threat of quarantine have caused a plunge in consumption. By contrast, the authorities have focused on keeping factories running as much as possible, including through the use of ‘closed loop’ management,” Evan-Pritchard said. 

According to Raymond Yeung, chief economist for Greater China at ANZ, a full-fledged economic recovery will be elusive for China. 

“The official infection numbers in mainland China are lower than in many other Asian economies. Yet, President Xi Jinping’s insistence on maintaining a ‘zero-COVID’ strategy continues to be contrary to regional policy trends,” he said.

He added: “National case numbers have been falling in May but domestic mobility is still highly restricted as indicated by the low levels of subway passenger traffic. Even with a small number of cases, fewer than 100 infections in Beijing for instance, the authorities may call for high-intensity restrictions that will dampen economic activities, posing a major policy uncertainty in the region.” 

What is your sentiment on USD/CNH?

6.69647
Bullish
or
Bearish
Vote to see Traders sentiment!

Yuan may face more weakness

As a ressult of the uncertainty, the weakness in the yuan is expected to continue and Friday’s surge is not expected to last long. 

According to Jonas Goltermann, senior markets economist at Capital Economics, the restrictions tightening in Beijing point to China’s lockdown policy remaining a headwind for sometime. 

He added that a weaker yuan will be a bad sign for risky assets. 

“In part, the correlation between the yuan and dollar exchange rate and equity prices is simply a corollary of the wider dollar-equity relationship. But the yuan is also, to a significant extent, influenced by the PBOC’s [People’s Bank of China] preferences. So, the fact that it has been allowed to depreciate, after a long period of stability, indicates that policymakers see a need for a weaker currency to help support the faltering economy. That is not, in our view, a positive sign for the global economy or financial markets,” Goltermann said. 

Read more

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?


Join the 400.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading