Yuan briefly hits 5-week low, steadies as annual parliament meeting begins

SHANGHAI: The yuan briefly hit an over five-week low against a firmer dollar on Friday before recovering some ground by midday, as investors refrained from testing key ley levels while China's annual meeting of parliament came underway.

The onshore spot yuan opened at 6.4747 per dollar and slipped to a low of 6.4924 at one point in morning trade, the softest level since Feb. 26.

By midday, the yuan was changing hands at 6.4728, 20 pips weaker than the previous late session close, and traders said it was expected to trade sideways at around 6.4730 for the remainder of the session.

A trader at a foreign bank said the spot market spontaneously stabilised as the annual meeting of parliament started this morning, and investors usually avoided volatility in the financial markets during high-profile political events.

Separately, some market watchers said they were surprised by the annual economic goals that came in weaker than they had expected.

China on Friday restored its annual economic growth target, setting it at above 6%, and pledged to create more jobs in cities than last year, as the world's second-biggest economy emerged from a year disrupted by the effects of COVID-19.

"There is in fact not much surprise from the government work report except for the super-low GDP target," said Iris Pang, chief economist for Greater China at ING.

"This makes me feel uneasy as I don't know what exactly the government wants to tell us about the recovery path it expects."

Pang added that other wording on the fiscal and monetary policies remained the same as last year.

Some analysts said the lower-than-expected growth target could allow the government to deal with other economic problems.

"2021 offers a rare opportunity since 2008 in the sense that the government has absolutely no pressure to maintain growth," said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

"There is no doubt China will achieve it, likely by a large margin," he said, adding the government could have capacity to pay more effort dealing with issues including deleveraging.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint at 6.4904 yuan per dollar, 146 pips, or 0.22%, weaker than the previous fix of 6.4758. It was the weakest since Jan. 4.

The weaker fixing has pushed China's trade-weighted yuan basket index to 97.06, the highest since June 22, 2018, according to Reuters' calculation based on official data.

By midday, the global dollar index stood at 91.634, while the offshore yuan was trading at 6.4822 per dollar.