China’s yuan weakens as government sets modest growth target

SHANGHAI: China’s yuan weakened on Monday, after the country set a softer-than-expected economic growth target for 2023 that disappointed some investors’ expectations for sizeable stimulus, while the market awaited more rate hike clues from the United States.

The People’s Bank of China set the midpoint rate at 6.8951 per US dollar prior to market open, firmer than the previous fix 6.9117.

In the spot market, the yuan opened at 6.9072 per dollar and was changing hands at 6.9081 at midday, down 66 pips from the previous late session close.

China set a modest target for economic growth this year of around 5% on Sunday as it kicked off the annual session of its National People’s Congress (NPC), which is poised to implement the biggest government shake-up in a decade.

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“Yuan sentiment is undermined by the disappointing growth target set for 2023 that dampened expectations for significant stimulus this year,” said Maybank analysts in a note. “That said, we remain cautiously optimistic on China’s growth prospects.”

With the absence of expected strong stimulus, Citi analysts said investors may need actual data to confirm the growth outlook, and predicted that it was more likely to beat than miss expectations.

The January/February combined trade data, due on Tuesday, “are the most important to watch, as a much weaker than expected print could lead to more dovish cyclical policies”, Goldman Sachs analysts said in a note.

During this National People’s Congress session, Citi analysts said the government’s reshuffling of key people, structure reform and the new premier’s first press conference could be the next key events to watch.

“We will know much more on March 13, when Li Qiang makes his debut as China’s new Premier at a media conference. His priority, style and power dynamics with the No.1 will go a long way to shaping China’s economy and market in the next five years,” said economists at Macquarie.

The yuan softened even as the US dollar made a tentative start to the week.

Investors are awaiting testimony from Federal Reserve Chair Jerome Powell on Wednesday and looking towards the February jobs report, due on Friday, which will likely influence how hawkish the US central bank will be.

The global dollar index fell to 104.42 from the previous close of 104.521. The offshore yuan was trading at 6.9145 per dollar.