The Chinese currency soared to a three-week peak versus the US dollar on Monday, buoyed by increasing bets the US Federal Reserve will reduce interest rates in the coming weeks to protect the economy from the novel coronavirus outbreak.
Federal Reserve chief Jerome Powell disclosed that the central bank will support the US economy in the face of financial instability posed by the outbreak, although he stressed the economy remains in good condition overall.
While cases of the coronavirus have seemed to have stabilized in China, infections have been reported to be on the rise in other countries. China's Hubei province, where the virus is believed to have emerged, reported just under 200 new cases of infections on Monday for the first time since January.
China's manufacturing purchasing managers' index (PMI) was down to 35.6 last month, from 50 the previous month, based on figures provided by the National Bureau of Statistics, much lower compared to the median projection of economists as the virus continues to wreak havoc on global markets. The non-factory barometer also dropped to its lowest mark at 29.8. Both figures fell below 50, which signifies contraction in China's economy.
The worse-than-estimated figures are sparking worries over the magnitude of the distortion to the world's second-biggest economy brought about by the deadly virus, and how long it will take for the country's production activity to normalize. China's CSI 300 Index of shares were down 3.5 percent on Friday as the positive vibes waned following a $1 trillion stock surge.
China's onshore yuan has been resilient to financial jolts, so far. The currency has retreated 0.5 percent against the USD in the last few quarters. The CNH/USD currency pair's weakening from 7.0562 suggests that recovery from 6.8451 has completed, ahead of 7.0866 resistance. The focus is now on 6.9570 support. A break in this region will confirm this case and bring further drop through 06.8451 to resume a corrective fall from 7.1952.
The onshore yuan opened at 6.9761 per USD and rose to a high of 6.9634 at one point, the strongest since February 12. Before opening bell, the People's Bank of China set the midpoint rate at 6.9811 per USD, firmer compared to the previous fix of 7.0066, and the strongest level since February 17.
As of mid-day, the currency's spot rate was changing hands at 6.9702 per USD, 208 pips firmer compared to the previous session's close. China's forward market also advanced to reflect the rally in US Treasury bonds, with one-year dollar/yuan swap points climbing to 630 points, the highest level since January 20.
