Yuan eases on concern China's post-COVID bounce is losing steam

SHANGHAI: China's yuan eased against the dollar on Friday, pressured by slightly weaker-than-expected first quarter economic data and expectations that growth rates will moderate later this year.

Gross domestic product (GDP) jumped a record 18.3% in the first quarter from a year earlier, when coronavirus lockdowns paralyzed much of the economy, official data showed.

But that was slower than the 19% forecast by economists in a Reuters poll, and heavily skewed by the massive slump in activity last year.

On a quarterly basis, analysts noted activity expanded only 0.6%, versus expectations of 1.5% and a fourth-quarter pace of 2.6%.

While China's recovery looks to be still solidly on track, growth is expected to moderate later this year as the government turns its attention to reining in financial risks in overheating parts of the economy and begins withdrawing emergency support measures announced last year.

"Chinese economic data mostly came in below expectations and that along with heavy global bond yields was enough to drag sentiment down," said Edward Moya, senior market analyst at Oanda in New York.

"China's growth will trend lower going forward, but this mixed reading will likely prevent policymakers from tightening too quickly," he added.

The spot yuan opened at 6.5300 per dollar and was changing hands at 6.5306 at midday, 90 pips weaker than the previous late session close.

But the yuan looked set for a second weekly gain, thanks to recent broad weakness in the dollar, which was set for its worst back-to-back weekly drop this year. If the yuan finishes the late night session at the midday level, it would have gained 0.34% against the dollar for the week.

Several traders said the slightly disappointing GDP data pressured the local unit on Friday morning, but it has dampened market worries over an imminent change to policy stance and eased tightening worries.

"All numbers show a rebalance from external demand to domestic.

However, it is still far from full recovery of domestic demand," said Xing Zhaopeng, senior China strategist at ANZ in Shanghai, adding that the parliamentary meeting in March had indicated that the authorities were comfortable with more modest GDP growth.

"The next stage policy will be announced on the politburo meeting this month end. We expect policy support will remain conservative," Xing said.

Some economists and analysts noted that ties between Beijing and Washington could become a key factor influencing the economic recovery in the remainder of this year.

"China-US relations will be critical for China's economic growth, mostly in technology development. It is likely that the US will continue to put more pressure on China on this topic," said Iris Pang, chief economist for Greater China at ING.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at a three-week high of 6.5288 per dollar, 9 pips firmer than the previous fix of 6.5297.

By midday, the global dollar index stood at 91.757, while the offshore yuan was trading at 6.533 per dollar.