Offshore Yuan Pares Weekly Advance as Economic Data Disappoint

  • Figures suggest recovery momentum is not strong: researcher
  • Slower growth could delay yuan reforms, Commerzbank says

The offshore yuan pared a weekly gain as data from factory output to investment suggested that an economic recovery may be losing momentum.

The currency fell 0.15 percent to 6.6527 as of 5 p.m. in Hong Kong’s overseas market, reducing its five-day advance to 0.2 percent. The yuan in Shanghai dropped 0.11 percent, according to prices from the China Foreign Exchange Trade System. The People’s Bank of China earlier weakened its daily fixing by 0.43 percent, the most since June 27, to 6.6543.

Official data for industrial production, retail sales and fixed-asset investment released on Friday all fell short of estimates, while China’s broadest measure of new credit and another key gauge of lending increased at the slowest pace in two years. The evidence of a slowing economy will complicate China’s recent efforts to steady the yuan, especially before a Group of 20 summit in the eastern city of Hangzhou in September and the currency’s entry into the International Monetary Fund’s reserves the following month.

"The economic data suggest the momentum for China’s recovery is not strong, and they are pressuring the yuan weaker," said Banny Lam, Hong Kong-based head of research at CEB International Investment Corp. "The yuan will likely depreciate in the near term, but won’t experience sharp declines in the medium-run because the dollar could weaken as the chance of the Federal Reserve boosting interest rates is waning."

China will try to stabilize expectations for the exchange rate because that will aid its push to promote the yuan’s global use, said Gao Qi, a foreign-exchange strategist at Scotiabank in Singapore. The nation will increase cross-border use of the yuan, encourage domestic institutions to lend the currency to foreign borrowers and make it more convenient for overseas entities to issue yuan bonds in the interbank market, according to a PBOC report obtained by Bloomberg News.

Slower growth in China could delay reforms to the yuan, said Zhou Hao, a senior economist at Commerzbank. Reforms such as further opening of the capital account may speed up the pace of outflows when the economy slows, he said.

Aggregate financing in July was 487.9 billion yuan ($73.4 billion), less than half of the median estimate in a Bloomberg survey of economists. New yuan loans stood at 463.6 billion yuan, versus a projected 850 billion yuan, data released by the PBOC on Friday show.

— With assistance by Tian Chen

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