Yuan erases 2021 gain but remains in high levels

The Chinese yuan briefly erased its year-to-date gains versus a rebounding dollar, amid a broad rout in risk assets across Asia.
The onshore yuan weakened as much as 0.5% to 6.5290 against the greenback in Shanghai, falling past the 6.5283 per dollar level it closed at on Dec. 31, before paring the drop slightly. The Senate’s approval of a $1.9 trillion stimulus package in the U.S. and strong exports data out of China, which pointed to recovering demand in America and other major markets, helped send the benchmark Treasury yield 4 basis points higher, sparking a decline in Asian stocks and currencies.
Optimism over a global recovery from the pandemic has morphed into concerns that rising inflation and an overheating economy would trigger sooner-than-expected rate hikes. The Chinese bond market had largely escaped a Treasury-sparked rout seen in the past few weeks, but a continued pullback in Chinese equities and expectations for normalizing growth in the world’s second-largest economy are beginning to dampen sentiment on the yuan.
Last week, China’s government set a conservative economic growth target of above 6% for the year, as it shifts focus from recovery mode to longer-term challenges like reining in debt and reducing technological dependence on the U.S.
Even after yesterdays’s declines, the yuan remains higher than its average level of the past five years. It’s the third best-performing emerging currency this year out of 24 major exchange-rates tracked by Bloomberg.
A Bloomberg gauge of the dollar’s strength gained 0.4% as of 5:06 p.m. local time to its highest in four months. MDT/Bloomberg