Yuan pressured by renewed virus worries, softer factory activity - Reuters

    SHANGHAI, Feb 1 (Reuters) - China's yuan got February off to
a weak start after eight straight months of gains, as Monday's
trading was dominated by renewed fears that a recent surge in
mainland COVID-19 cases and fresh lockdowns in some cities could
stunt the economic recovery.
    Those worries were borne out in a survey of factory
activity, which grew at the slowest pace in five months in
January, hit by a wave of domestic coronavirus infections.

    "Chinese manufacturers remain worried about this second
virus wave. And if China is worried, the world should also be
worried," Stephen Innes, chief global markets strategist at Axi,
said in a note.
    Prior to market opening, the People's Bank of China set the
midpoint rate at 6.4623 per dollar, 86 pips or 0.13%
firmer than the previous fix of 6.4709. 
    In the spot market, the onshore spot yuan opened
at 6.4300 per dollar and was changing hands at 6.4605 at midday,
305 pips weaker than the previous late session close.
    The dollar was also in heavy demand, traders said, as
investors sought safety in the U.S. currency amid nervous
markets in the wake of the battle on Wall Street between hedge
funds and retail investors.
    Some currency traders also said that momentum for further
gains in the Chinese currency started to fade after the yuan
basket index rose to its highest level in 2-1/2 years, mainly as
the authorities were widely believed to be keen on maintaining
the nation's export competitiveness. 
    Official data showed that CFETS RMB index, a
gauge that measures the yuan's value against its major trading
partners, rose to 96.50 as of Friday, the highest level since
June 2018.
    Interbank money conditions were also on the radar of
investors. China's short-term money rates remained elevated on
Monday, as the central bank refrained from making a heavier
liquidity injection with cash conditions still tight ahead of
the week-long Lunar New Year holidays, which start on Feb. 11.

    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4623   6.4709    0.13%
                                       
 Spot yuan          6.4605   6.43      -0.47%
                                       
 Divergence from    -0.03%             
 midpoint*                             
 Spot change YTD                       1.05%
 Spot change since 2005                28.11%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         96.48       96.39     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.532      90.628    -0.1
 
    
    
*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% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.4625    -0.03%
        *                        
 Offshore              6.6162    -2.33%
 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 Shri Navaratnam)
  

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