Yuan recoups all losses since virus outbreak

Chief Investment Office / Mar 06, 2020

Stimulus expectations and a weaker greenback are supporting the currency

Photo credit: AFP Photo

China’s yuan erased losses since the coronavirus outbreak prompted the government to order a drastic shutdown of the economy, with stimulus expectations and a weaker greenback supporting the currency.

The onshore yuan rose 0.7% vs the greenback to the strongest since 22 January, a day before China locked down Wuhan to stop the virus from spreading. China’s onshore markets have continued to show resilience after the Federal Reserve’s interest rate cut added fuel to a rebound in Emerging Markets (EM). The Shanghai Composite Index rose for a third day and government bonds rallied, sending the 10-year yield to the lowest since October 2016. The offshore yuan, which just capped its best winning streak since September 2017, slipped 0.1% on Thursday (5 March).

Most major currencies rose against the US dollar after the Fed slashed interest rates by 0.5%pt, the first intra-meeting move since the 2008 Global Financial Crisis. Chinese 10-year bond spreads widened to the most over US Treasuries since 2015 earlier this week (ending 6 March).

While new virus cases have accelerated in the rest of the world, the epidemic is showing signs of easing in China, where it began. That is giving Chinese policymakers room to shift their focus to getting the nation back on its feet. Signs of a rebound have encouraged investors to look past dismal economic data, including a record 80% slump in China’s car sales last month and an unrepresented plunge in the manufacturing and non-manufacturing purchasing managers’ indices. – Bloomberg News.

The US Dollar Index (DXY) fell 0.53% to 96.820 on Thursday, the euro gained 0.91% to USD1.1237, the pound added 0.64% to USD1.2954, and the yen strengthened 1.27% to 106.16 per dollar.


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