Offshore Yuan Snaps Six-Day Drop on Signs of Stabilizing Growth

Updated on
  • Industrial company profits snap seven-month losing streak
  • Reversal of decline also to do with dollar moves, OCBC says

The offshore yuan broke a six-day run of declines after data released over the weekend boosted optimism on the economy as the dollar fell.

Industrial profits climbed for the first time in eight months in the January-February period, according to official data published on Sunday. The economy is showing early signs of stabilization, reducing the need for further cuts in benchmark interest rates, China International Capital Corp. economists wrote in a March 27 note. The Bloomberg Dollar Spot Index dropped on Monday, after advancing by the most since November last week.

The yuan traded in Hong Kong gained 0.07 percent to 6.5212 a dollar as of 5:15 p.m. in Hong Kong, after falling 0.05 percent earlier, prices compiled by Bloomberg show. The currency in Shanghai declined 0.02 percent to 6.5165, according to China Foreign Exchange Trade System prices. The People’s Bank of China cut its fixing, which limits onshore moves to 2 percent on either side, to a three-week low of 6.5232.

“The industrial profits data released over the weekend are pretty good, indicating early signs of improvement in economic fundamentals,” said Tommy Xie, Singapore-based economist at Oversea-Chinese Banking Corp. “The gain in the afternoon is also likely a result of the dollar move.”

Rate Outlook

Oil processing, electrical machinery and food companies spearheaded the recovery in industrial profits, with 28 of 41 industry groups posting higher incomes. The optimism was tempered by increasing debt and growing inventories, and by the statistics bureau flagging a low base effect.

The CFETS RMB Index, which China uses to measure the yuan’s performance against 13 currencies, rose 0.11 percent from a week earlier to 98.16 on Friday, according to official data released Monday.

Increasing the yuan’s flexibility now against the basket of currencies would be wise as the dollar is showing weakness and depreciation pressure on China’s currency is easing, Chinese Academy of Social Sciences researcher Zhang Ming wrote in an article in Caixin.com on March 26.

In the money markets, the seven-day repurchase rate, a gauge of interbank funding availability, climbed three basis points to 2.32 percent, according to National Interbank Funding Center prices. The yield on government notes due January 2026 rose five basis points to 2.89 percent.

— With assistance by Tian Chen, and Helen Sun

Before it's here, it's on the Bloomberg Terminal. LEARN MORE