SHANGHAI: The yuan rose to a one-week high against the dollar on Monday morning, underpinned by solid economic data that showed the fading negative impact from coronavirus shocks.
China's industrial output rose at a faster-than-expected pace in October, while retail sales continued to recover albeit more slowly than forecast as the world's second-largest economy emerged from its Covid-19 slump.
"Data releases in China early Monday adds to the positive," Terence Wu, strategist at OCBC Bank in Singapore, said in a note.
"Industrial production continued to exceed expectations. Retail sales were softer than expected, but the market chose to take heart from the monthly improvement.
"The posture for USD-CNH remains sideways to lower in the near term. A sustained run below 6.6000 would allow 6.5500 to implicitly attract."
The onshore yuan opened at 6.5850 per dollar and rose to a high of 6.5798 at one point in morning trade, the strongest level since Nov.9.
By midday, it was changing hands at 6.5826,234 pips firmer the previous late session close.
Traders said the signing of a China-backed trade pact also supported the yuan.
Fifteen Asia-Pacific economies formed the world's largest free trade bloc on Sunday, a China-backed deal that excludes the United States.
Traders and analysts said the Regional Comprehensive Economic Partnership (RCEP) would improve China's trade conditions in the region and benefit the yuan.
"The reason why the central bank has a greater tolerance of yuan strength is resilient exports since the outbreak of the pandemic," said Liu Ligang, chief China economist at Citigroup in Hong Kong.
"Exports were not affected much by the yuan's strength. China is ahead of most major economies in resuming work and production, and China manufactures many products that are needed by other countries during lockdowns," Liu added.
Separately, the spot market showed little reaction to the People's Bank of China's (PBOC) cash injection into the financial system earlier in the session, after recent defaults by state firms and sell-offs in the bond market. It injected 800 billion yuan ($121.55 billion) in medium-term loans and kept borrowing costs unchanged for the seventh straight month.
Prior to the market opening, the PBOC set the midpoint rate at a near one-week high of 6.6048 per dollar, firmer than the previous fix of 6.6285.
The global dollar index fell to 92.581 at midday, when the offshore yuan was trading at 6.5775 per dollar. - Reuters