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China’s yuan firms despite first cases of Omicron in some cities

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SHANGHAI — China’s yuan firmed against the

dollar on Monday, as corporate demand ahead of the Lunar New

Year offset expectations of an early U.S. interest rate hike and

worries over the first cases of the Omicron COVID-19 variant

reported in the city of Tianjin.

Prior to market opening, the People’s Bank of China (PBOC)

set the midpoint rate at a near three-week high of

6.3653 per dollar, 89 pips firmer than the previous fix 6.3742.

In the spot market, the onshore yuan opened at

6.3740 per dollar and was changing hands at 6.3737 at midday, 33

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pips firmer than the previous late session close.

Corporates converting their dollars ahead of the long Lunar

New Year holiday, which falls on Jan. 31 to Feb. 6, provided

usual seasonal support for the yuan.

Otherwise the dollar remains underpinned by market

expectations that the U.S. Federal Reserve will tighten monetary

policy sooner than previously expected.

Separately, investors were becoming increasingly concerned

over how far China will go to smother outbreaks of COVID-19,

following isolated reports of in-community transmission of the

fast spreading Omicron variant of the virus.

In December, a national health official said local

transmission caused by an Omicron infection arriving from

overseas had been found in the southern city of Guangzhou and

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quickly contained, without giving local case numbers.

And over the weekend, two cases of local transmission of

Omicron were reported in the port city of Tianjin.

Authorities have responded by tightening exit controls.

Residents in the city of 14 million people are now required to

obtain approval from employers or community authorities before

leaving town and a negative COVID-19 test within 48 hours of

departure.

In China’s central Henan province, the city of Anyang

detected two local Omicron infections traced to a student

arriving from Tianjin, and it was unclear whether any of the

other COVID-19 cases in Anyang belonged to the Omicron strain.

Tianjin’s proximity to Beijing added to concerns.

Tommy Xie, head of Greater China research at OCBC Bank, said

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in a note to client that authorities were likely to maintain

their aggressive strategy to stamping out the virus ahead of the

upcoming Beijing Winter Olympics.

He said the economy was likely to suffer “more short-term

disruptions from more frequent lockdowns.”

Analysts at Maybank the fight against the pandemic may

increase the need for policy support for the economy.

By midday, the global dollar index rose to 95.916

from the previous close of 95.719, while the offshore yuan

was trading at 6.3784 per dollar.

The yuan market at 0407 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.3653 6.3742 0.14%

Spot yuan 6.3737 6.377 0.05%

Divergence from 0.13%

midpoint*

Spot change YTD -0.29%

Spot change since 2005 29.85%

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revaluation

Key indexes:

Item Current Previous Change

Thomson 102.34 102.52 -0.2

Reuters/HKEX

CNH index

Dollar index 95.916 95.719 0.2

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2 percent from official midpoint rate it sets each

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.3784 -0.07%

*

Offshore 6.5165 -2.32%

non-deliverable

forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.

.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Simon

Cameron-Moore)

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