Yuan calm against dollar even as Russia-Ukraine crisis deepens

Yuan was little changed against the dollar on Wednesday, as traders see limited short-term impact from the Russia-Ukraine crisis, while further western sanctions could benefit currency in long run.

China's yuan was little changed against the dollar on Wednesday, as traders and analysts see limited short-term impact from the Russia-Ukraine crisis, while further western sanctions against Moscow could even benefit the currency in the long run. The yuan was changing hands at 6.3280 per dollar around midday, little changed from the previous late session close, despite the People's Bank of China (PBOC) setting the midpoint at a four-week high.

Western nations and Japan on Tuesday punished Russia with new sanctions for ordering troops into separatist regions of eastern Ukraine and threatened to go further if Moscow launched an all-out invasion of its neighbour.
 

Investment bank China International Capital Corp (CICC) said in a note that the conflict has limited impact on China's giant economy, given its relatively small exposure to Russia in terms of trade. In the long term, Russia could increase yuan holdings due to western sanctions.
 

Western sanctions "could push Russia towards an alternative currency bloc like the RMB," potentially benefiting Chinese government bonds, said Howe Chung Wan, head of Asian Fixed Income at Principal Global Investors. However, China's central bank will be unlikely to let the yuan appreciate too much given the weakness in the domestic economy, he cautioned, identifying 6.3 per dollar as a near-term floor for the yuan. His view was echoed by a trader at a Chinese bank, who said that the yuan will unlikely break past the 6.3 level in the short term.
 

The Commonwealth Bank of Austria said in a report on Wednesday that the threat of intervention by the PBOC undermines chances for the yuan to become a reliable safe haven in the future.