HONG KONG: China’s yuan firmed on Thursday after a largely directionless morning session, as a smaller decline in the profits of the country’s industrial firms and weakness in the US dollar helped the currency regain some ground lost earlier this week.
The yuan has weakened by 0.45% against the US dollar so far this week, as investors continued to search for clearer evidence that growth in the world’s second-biggest economy could completely recover from the fallout of the past three years of strict COVID-19 pandemic restrictions.
Profits at China’s industrial firms fell 21% in the first quarter from a year earlier, official data showed on Thursday. While the decline provided a reminder that the country’s economic recovery remains slow, the data showed a slight improvement from the 23% slump seen in the first two months of 2023.
Still, the gain seen Thursday may not be sustained.
While earlier economic data such as first-quarter gross domestic product, at 4.5%, underlined that recovery is under way, other indicators such as March inflation data mean that inflows into the yuan “are showing some hesitancy”, according to Bank of America in a research note published on Thursday.
China’s yuan eases to lowest vs dollar in nearly a month; US data in focus
“Foreign investors are looking for a stronger signal of self-sustaining economic recovery before committing to further inward investments,” it said.
The spot yuan opened at 6.9300 per dollar and was changing hands at 6.9245 at midday, 25 pips stronger than the previous late session close and 0.05% stronger than the midpoint.
The People’s Bank of China set the midpoint rate at 6.9207 per US dollar prior to market open, firmer than the previous fix 6.9237.
The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.
The global dollar index fell to 101.364 from the previous close of 101.467.
Investors will be watching out for first-quarter US gross domestic product data and weekly jobless claims due overnight. A Reuters poll forecasts growth at 2%, and stronger-than-expected data would support the dollar.
But in the near term, further weakness of the yuan past the 7.0 level is unlikely, analysts said.
Investors would refrain from placing risky bets ahead of the upcoming three-day public holiday in China, when the central bank will not set any official fixing and offer any guidance to offshore investors, said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.
The offshore yuan was trading 0.19% weaker than the onshore spot at 6.9379 per dollar.
The one-year forward value for the offshore yuan traded at 6.771 per dollar, indicating a roughly 2.46% appreciation within 12 months.
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