Yuan Breaks Two-Week Rally as Dollar Rise Offsets Recovery Signs

Updated on
  • PBOC may be buying foreign exchange to boost reserves: DBS
  • Currency now in equilibrium range, central bank official says

The yuan broke a two-week rally as a rebound in the dollar and lower central bank fixings offset signs of a recovery in China’s economy.

QuickTake The People’s Currency

A gauge of strength in the greenback climbed for a third day as global central banks moved to limit appreciation in their currencies. China’s economy expanded 6.7 percent in the first quarter from a year earlier, the statistics authority announced Friday, meeting the median projection of economists that Bloomberg surveyed. Industrial output, fixed-asset investment and retail sales all picked up in March.

The yuan dropped 0.19 percent from April 8 to 6.4802 a dollar as of 4:41 p.m. in Shanghai, according to China Foreign Exchange Trade System prices. The offshore rate retreated 0.16 percent to 6.4891. The People’s Bank of China has lowered its fixing by 0.23 percent in five sessions. A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 currencies, declined for a third consecutive week, losing 0.26 percent to 97.36.

“The yuan is weakening along with other currencies as the dollar gained,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “There’s also the possibility that the PBOC could be selling the yuan and buying foreign exchange, leading to a relatively weak performance against the basket of currencies. The improving economy is alleviating depreciation pressure, so the PBOC can boost its foreign-exchange reserves.”

Market Forces

The Chinese currency is more or less in an equilibrium range, and market forces are now the main driver for the exchange rate, PBOC Deputy Governor Yi Gang said in Washington on Thursday. A number of first-quarter indicators have shown the economy is “pretty robust,” Yi added, citing electricity, transportation, inflation and producer-price data.

The dollar halted its decline as global central banks moved to limit gains in their currencies. Singapore unexpectedly moved to a neutral policy of zero percent appreciation in the exchange rate this week, while the Bank of Canada has warned that the loonie’s more-than-10 percent gain since the middle of January is starting to hurt the economy, and Japanese officials are trying to talk down the yen, the best performing major currency this month.

China’s aggregate financing, the broadest measure of credit, surged to 2.34 trillion yuan ($360.7 billion) in March, the PBOC said, far exceeding the median forecast of 1.4 trillion yuan in a Bloomberg survey. New yuan loans were 1.37 trillion yuan, compared with an estimate of 1.1 trillion yuan. The credit expansion signals that the central bank has prioritized growth, after the week-long lunar new year holiday distorted data for January and February.

“The economy has stabilized thanks to a flood of liquidity and improved sentiment in the property market,” said Tao Dong, head of Asia economics excluding Japan at Credit Suisse Group AG in Hong Kong. “It is not clear whether the momentum is sustainable.”

— With assistance by Helen Sun

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