Global Market: China’s yuan hits four-year high as strong GDP data ease stimulus concerns

China’s yuan strengthened to its highest level in more than four years against the US dollar on Monday, supported by stronger-than-expected economic growth in the third quarter and improving retail sales that eased pressure on Beijing to introduce more aggressive stimulus measures, according to a report by Reuters.

China’s economy grew 4.5% year-on-year in the July-September quarter, exceeding market expectations, while retail sales accelerated in September. The data indicated improving economic momentum towards the end of the quarter, reducing the immediate need for additional policy support to achieve the government’s annual growth target.

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According to Reuters, the onshore yuan opened at 6.6853 per dollar and was last trading at 6.6826 as of 0215 GMT, its strongest level since July 2022. The currency was 44 pips stronger than its previous late-session close.

Before the market opened, the People’s Bank of China (PBOC) set the yuan’s daily midpoint at 6.7208 per dollar, its strongest fixing since February 2, 2023. However, the midpoint was 311 pips weaker than a Reuters estimate.

The offshore yuan also gained ground, rising around 0.08% in Asian trading to 6.6818 per dollar.

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Strong economic data support yuan

The latest economic figures have reinforced expectations that China’s recovery is gaining traction, supported by improving domestic demand and additional fiscal measures.

Analysts at Capital Economics said September’s data suggested that the economy had regained momentum towards the end of the third quarter. They expect growth to accelerate further in the coming months as increased fiscal support takes effect.

The yuan has also drawn support from China’s trade surplus and companies converting their dollar holdings into the domestic currency, according to analysts at Huatai Futures, as per the report.

However, the outlook for further appreciation remains constrained by the interest rate differential between China and the United States. The gap continues to favour the dollar, while the Federal Reserve’s monetary policy trajectory remains a key factor for currency markets.

Huatai Futures analysts expect the pace of yuan appreciation to slow, with the currency likely to trade within a relatively firm range in the near term rather than extend its gains in a sustained upward move.

Dollar weakness offers additional support

The yuan’s advance comes as the US dollar weakened last week, recording its first weekly decline in more than a month against both the euro and the Japanese yen.

The decline reflected fading expectations of a Federal Reserve rate hike and continued concerns about a potential selloff in equities linked to artificial intelligence investments.

The dollar index, which measures the US currency against a basket of six major currencies, was up 0.01% at 101.81 on Monday.

Investors await signals from Chinese policymakers

Investors are now turning their attention to a financial forum in Beijing, where the PBOC governor and the head of the State Administration of Foreign Exchange are scheduled to speak. Their remarks could provide further clues about China’s monetary policy priorities and its approach to managing the yuan.

China’s central bank chief said last week that the country would continue opening up its financial markets to international investors. He also highlighted the potential of yuan-denominated assets to meet global investors’ growing demand for diversification amid trade uncertainty, the report stated.

The speeches are likely to be closely watched for indications of how policymakers intend to balance currency stability, financial market openness and domestic economic growth.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)