China’s yuan weakens on disappointing GDP data

SHANGHAI: The yuan weakened against the dollar on Monday, as GDP data reinforced recent signs of a broad loss in economic momentum, raising pressure on policymakers to deliver more stimulus.

China’s economy grew only modestly in the second quarter from the first as exports cooled and demand weakened both abroad and at home.

Prior to the market’s open, the People’s Bank of China (PBOC) set the midpoint rate at 7.1326 per US dollar, 8 pips weaker than the previous fix 7.1318.

China’s yuan weakens amid disappointing trade data, but downside seen as limited

The spot yuan opened at 7.1497 per dollar and was changing hands at 7.1643 at midday, 228 pips weaker than the previous late session close. On Friday, the yuan hit a one-month peak.

The Chinese currency has been steadily firming since the end of June on a broadly weaker dollar, stronger central bank midpoint fixings and assurances it would stabilise the yuan.

China’s second quarter GDP came in slightly lower than expectations at 6.3% from a year earlier, bringing offshore yuan weaker against the dollar, analysts at Citi wrote in a note.

UBS traders concurred that offshore yuan was weaker after the lower-than-expected GDP data.

The traders said the offshore yuan weakness would be limited to 7.18 on the day with the price reaction already “in hand” and trading on the Hong Kong market halted due to a tropical storm.

The offshore yuan was trading 64 pips weaker than the onshore spot at 7.1707 per dollar.

Meanwhile, some analysts have been calling for fiscal stimulus as any further interest rate cuts by the PBOC would widen the yield gap with the United States, putting the yuan under more pressure.

China’s central bank rolled over maturing medium-term policy loans and kept the interest rate unchanged on Monday.

The net medium-term policy loan injection was smaller than expected, underscoring how important yuan stability is to China’s central bank at this point and that a significant injection may not necessarily translate to greater growth momentum, Maybank analysts said in a note.

The global dollar index rose to 99.984 from the previous close of 99.914.

The one-year forward value for the offshore yuan traded at 6.9534 per dollar, indicating a roughly 3.13% appreciation within 12 months.