Yuan Halts Eight-Day Retreat as Data Signal Economy Steadying

  • Figures unlikely to alleviate pressures much, Scotiabank says
  • PBOC injects funds first time in a week after rates climb

China 3Q GDP Remains Steady at 6.7% on Year

The yuan halted this year’s longest run of losses as data showed the nation’s economy is stabilizing.

The onshore exchange rate climbed 0.07 percent to 6.7370 a dollar as of 5:58 p.m. in Shanghai, ending an eight-day run of declines that saw it weaken to a six-year low. The offshore rate gained 0.05 percent, while the currency declined for a fourth day against a trade-weighted index.

Official figures released Wednesday showed China’s third-quarter gross domestic product growth met expectations. The onshore yuan has weakened 3.6 percent so far this year, the most in Asia, as authorities looked to revive the economy and slow a drop in exports. The decline has all but wiped out the gap between the currency’s current price and the median year-end forecast of 6.75 a dollar.

"The data are mostly in line with expectations -- and as industrial production is weaker - it won’t help alleviate depreciation pressures,” said Gao Qi, a Singapore-based foreign-exchange strategist at Scotiabank. “The economy will likely continue to weaken next year, so the yuan will drop in the short-term."

Recent data have sent conflicting signals on China’s economy, with a plunge in exports in September contrasting with the first increase in factory gate prices since 2012. Data released Wednesday showed industrial output climbed 6.1 percent from a year earlier, compared with analysts’ median projection for a 6.4 percent rise.

Overseas investors boosted their holdings of China bonds by 42 billion yuan ($6.2 billion) from June to 806 billion yuan at the end of last month, the People’s Bank of China said in a statement. Foreign entities held 656.2 billion yuan of the nation’s equities at end-September, the data showed.

Bearish Bets

Options traders have became less bearish on the yuan this month, with risk-reversal prices showing that the premium to sell the onshore yuan over contracts to buy has fallen 26 basis points this month to 0.8 percent. United Overseas Bank Ltd. predicts that the yuan will gain more than 1 percent against the greenback within a year as the dollar’s strength appears to be overstretched, while Standard Chartered Plc lowered its forecasts, citing the yuan’s drop beyond the 6.7 level previously seen as a line in the sand for the PBOC.

In the money markets, the PBOC injected funds in open-market operations for the first time in more than a week, pumping in a net 40 billion yuan ($5.9 billion), data compiled by Bloomberg show. The overnight repurchase rate, a gauge of funding availability in the financial system, rose two basis points to 2.26 percent, after jumping the most in seven months on Tuesday.

— With assistance by Tian Chen, and Helen Sun

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