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China's yuan gains, shrugs off weak factory survey as hopes grow for easing in COVID rules

       By Georgina Lee
       HONG KONG, Nov 30 (Reuters) - China's yuan edged up
against the greenback on Wednesday, as traders shrugged off weak
factory activity data and remained optimistic that the
government would relax some of the strict measures used to
pursue its zero-COVID strategy.
    China's national health officials said on Tuesday that
authorities would respond to public's "urgent concerns" and
become more flexible in the implementation of anti-COVID
restrictions.
    Hopes for a further relaxation of the rules were fueled by a
Bloomberg report that the central Chinese city of Zhengzhou,
home of Apple Inc.'s (AAPL) largest manufacturing site, is
lifting a lockdown on its main urban areas starting Wednesday.
The report cited the local government's official WeChat account.
    "The reopening process in China will likely resemble a two
step forward, one step back situation, given the high COVID-19
outbreak (numbers) we have right now," said Alvin Tan, head of
Asia currency strategy at RBC Capital Markets.
    The spot yuan at one point firmed to 7.1339 per
dollar, its strongest in six days, after opening at 7.1585. It
was changing hands at 7.1416 at midday, 159 pips stronger than
the previous late session close and 0.49% below the midpoint.
    The People's Bank of China set the midpoint rate
at 7.1769 per dollar prior to market open, firmer than the
previous fix 7.1989.
    The spot rate is currently allowed to trade with a range 2%
above or below the official fixing on any given day, though
there is growing speculation that the PBOC could widen the band
some time in the future.
   Economic data released on Wednesday underscored the challenge
China faces revitalizing growth while the government sticks with
its strict strategy to prevent the spread of COVID-19.
    China's November manufacturing purchasing managers' index
dropped to 48.2 in November, signaling a contraction in factory
activity. It was the lowest reading in seven months and below
analysts' expectations.
    "We expect the onshore yuan to continue weakening gradually
going forward, as the exchange rate will reflect that China's
exports have been faltering," Tan said.
    A persistent decline this month in a key yuan index - the
trade-weighted China Foreign Exchange Trade System index
 - tracking the onshore yuan against 24 foreign
currencies, has highlighted the drag that weaker exports are
putting on the Chinese currency.
    The offshore yuan was trading 0.01% away from the
onshore spot at 7.141 per dollar. It gained over 900 pips in the
previous trading session, before narrowing its gain on
Wednesday.
    Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan's value, traded
at 6.9535, 3.21% away from the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.
    The global dollar index fell to 106.655 from the
previous close of 106.822.
    The yuan market at 4:09AM GMT:
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint
                                        0.31%
                    7.1769   7.1989


 Spot yuan
                                        0.22%
                    7.1416   7.1575


 Divergence from
 midpoint*
                    -0.49%
 Spot change YTD
                                        -11.01%
 Spot change since 2005
 revaluation                            15.89%
    Key indexes:
 Item            Current     Previous  Change

 Thomson
 Reuters/HKEX                           0.0
 CNH index

 Dollar index
                  106.655               -0.2
                             106.822


 *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
        *                 7.141  0.01%


 Offshore
 non-deliverable                 3.21%
 forwards              6.9535
               **

 *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 Georgina Lee; Editing by Simon Cameron-Moore)

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