SHANGHAI: China’s yuan held steady against the dollar on Tuesday after the government set an economic growth target of 5% for 2024, as expected, and investors awaited more policy details from this week’s annual parliament session.
Reactions in the yuan have been muted, while yields on China’s 10-year government bonds dropped more than 1 basis point after the release.
The National People’s Congress (NPC), kicked off its annual session on Tuesday, with plans to contain the 2024 fiscal budget deficit at 3% of gross domestic product (GDP).
“If the GDP target is left unchanged at around 5%, it could support equity inflows and the yuan as such a target would require more stimulus,” said Chang Wei Liang, FX and credit strategist at DBS.
Still, traders and investors are awaiting more policy details during the annual session.
“Our offshore trader is watching China’s industrial strategy and its impact on trade partners, suggesting to stay short the offshore yuan,” analysts at Citi wrote in a note.
China’s yuan steady before key parliamentary meeting, but outlook weak
Meanwhile, China’s services activity grew at a slower pace in February, with business confidence moderating for the second month and firms trimming staff for the first time since November, a private-sector survey showed on Tuesday.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1027 per US dollar, 7 pips weaker than the previous fix 7.102.
The spot yuan opened at 7.1950 per dollar and was changing hands at 7.1977 at midday, only 9 pips stronger than the previous late session close.
UBS analysts said offshore investors should consider hedging the yuan FX exposure amid increased allocation to China’s onshore shares, citing reasons such as an overpriced yuan and a widening yield differential between China and the US.
The global dollar index rose to 103.868 from the previous close of 103.832.
The offshore yuan was trading 108 pips weaker than the onshore spot at 7.2085 per dollar.
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