Yuan falls on new coronavirus outbreaks in China

The Chinese yuan on Tuesday shows a decline in pair with the dollar amid a sharp increase in cases of Covid-19 in the country. Additional pressure on the currency was exerted by unexpectedly weak data on foreign trade, which offset optimism about the opening of the economy, which caused a surge in volatility in the foreign exchange market last week.

The current quote of the USD/CNY pair is 7.2577. Earlier, the People's Bank of China set the median yuan exchange rate at a weekly high of 7,215 yuan per dollar. 

At the same time, the dollar index is holding in the area just above 110. The index is slightly declining on expectations that a possible victory of the US Republican Party in the midterm elections may strengthen opposition to the growth of budget spending, which will put pressure on the US currency.

But back to China. According to official data, China has seen a sharp increase in the incidence of Covid-19 in Guangzhou and other major cities. This factor, combined with a potential increase in US inflation in October (which may be announced on Thursday), constrains investors' risk appetite.

Additional pressure on the yuan was exerted by yesterday's data on foreign trade. According to statistics, China's exports and imports unexpectedly fell in October, which was the first simultaneous drop since May 2020.

However, in general, the market continues to expect a gradual adjustment of the policy regarding Covid-19 in China as evidence that the country is preparing for the opening of the economy. Investors are closely monitoring not only the timing of the completion of the US Federal Reserve's tightening cycle, but also betting on the completion of the zero tolerance policy for Covid-19 in China.