China's yuan eases as uneven economic recovery dents sentiment
Business
Investors were also cautiously waiting to see if the Federal Reserve will hike interest rates.
SHANGHAI (Reuters) - China’s yuan eased against the dollar on Wednesday as a slew of data pointed to an uneven economic recovery since Beijing dropped its stringent zero-Covid strategy, denting market sentiment.
Investors were also cautiously waiting to see if the Federal Reserve will hike interest rates next week after the collapse of two banks sparked fears of a wider financial crisis in the US, though worries about possible contagion have eased.
Official data on Wednesday showed that China’s retail sales in the first two months of 2023 swung back to growth, but factory activity expanded slightly slower than expected and the property sector remained weak, suggesting the bruised economy still needed time to fully emerge from pandemic damage.
“We think CNY will remain on the back foot, as re-opening of the economy should organically lead to a lower current account surplus, while geopolitical risk remains on the radar,” analysts at Goldman Sachs said in a note.
“Policy makers have shifted their focus to be more pro-growth and will likely lean against any significant CNY appreciation vs CFETS basket, in our view.”
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8680 per dollar, 269 pips or 0.4% firmer than the previous fix of 6.8949.
In the spot market, the onshore spot yuan opened at 6.8820 per dollar and was changing hands at 6.8843 at midday, 48 pips softer than the previous late session close.
However, the weakness in the yuan was capped by uncertainly over the Fed’s tightening trajectory and what that will mean for the dollar.
“Short-term sentiment and market expectations have changed too rapidly over the past two weeks, making it really hard to place bets on the currency,” said a trader at a foreign bank.
The dollar found support as investors dialled back expectations of US rate cuts as fear of a banking crisis ebbed and another stubbornly high inflation print landed.
Separately, China’s central bank ramped up liquidity injections as it rolled over maturing medium-term policy loans for a fourth month in a row, while keeping the interest rate unchanged.
By midday, the global dollar index stood at 103.518, while the offshore yuan was trading at 6.884 per dollar.
The one-year forward value for the offshore yuan traded at 6.7337 per dollar, implying a 2.23% appreciation within 12 months.
