Yuan Recoups All Losses Since Virus Outbreak First Shut Economy
China’s yuan erased losses since the coronavirus outbreak prompted the government to order a drastic shutdown of the economy.
(Bloomberg) -- 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% versus the greenback to the strongest since Jan. 22, 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. 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.
Most major currencies rose against the U.S. dollar after the Fed slashed interest rates by half a percentage point, the first intra-meeting move since the 2008 financial crisis. Chinese 10-year bond spreads widened to the most over U.S. Treasuries since 2015 earlier this week.
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’s giving Chinese policy makers room to shift their focus to getting the nation back on its feet. The economy was likely running at 60% to 70% of capacity last week, compared with about 50% in early February, according to Bloomberg Economics.
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’ indexes. Some emerging-market traders are taking the yuan’s appreciation as a signal that Asian markets may have already priced in the slowdown.
“From market perspective, the worst is likely to be behind us and optimism over the recovery on strong China stimulus in subsequent quarters outweighed the collapse of China economic activities in February,” wrote Ken Cheung, chief Asia foreign exchange strategist at Mizuho Bank, who expects the yuan to reach 6.9 per dollar.
Also helping the yuan are travel restrictions that have limited overseas spending by Chinese tourists. Net spending amounted to $219 billion last year, accounting for 84% of China’s service deficit.
--With assistance from Alex Nicholson.
To contact the reporters on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net;Ye Xie in New York at yxie6@bloomberg.net
To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Alec D.B. McCabe, Dana El Baltaji
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