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China’s yuan extends advance as reopening bets boost sentiment

Bloomberg

The yuan extended gains, jumping to its strongest in nearly two weeks, as hopes over a relaxation of China’s Covid curbs stoked optimism about the country’s economy and fueled appetite for riskier assets.
The currency surged as much as 1.1% to 7.0797 per dollar, as speculation over China reopening dominated market sentiment on Wednesday afternoon. The yuan has been on a roller-coaster ride this week, slumping on November 28 after Chinese residents protested against Covid restrictions and then paring losses in the following
sessions on reopening hopes.
“We do think China is clearly on the path heading towards reopening, though there might still be some temporary setbacks and disruptions,” said Xiaojia Zhi, head of research at Credit Agricole CIB. “We remain constructive on the yuan medium term with the expectation of China recovery on the back of reopening and likely peaking out of the dollar.”
China’s once-strict Covid-Zero rhetoric seems to be moving in a more nuanced direction. Beijing said it would bolster vaccination among its senior citizens, a move regarded by health experts as crucial to reopening. The central city of Zhengzhou, home of Apple Inc.’s largest manufacturing site, is lifting a lockdown on its main urban areas.
“People need to have more realistic expectation in terms of how this reopening will look like, and acknowledge it is a very lengthy and bumpy process,” said Becky Liu, head of China macro strategy at Standard Chartered Bank. “In general, dollar-yuan will be in a range of 7-7.2 until the first half of 2023, and then it will slightly appreciate to 6.95 by end-2023.”

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