Yuan higher as GDP data shows growth uptick

Yuan rises to strongest level since November

PUBLISHED : Monday, 17 July, 2017, 3:16pm
UPDATED : Monday, 17 July, 2017, 10:58pm

The onshore yuan rose for a sixth day on Monday after China’s central bank raised the currency’s daily reference rate amid a declining US dollar and after the release of China’s GDP data.

Jimmy Zhu, chief strategist at Fullerton Markets said the yuan had been benefitting from the dollar’s underperformance after Federal Reserve Chairwoman Janet Yellen’s dovish comments last week that showed the Fed’s concern on the recent soft inflation.

China’s official data showed on Monday that the economy expanded 6.9 per cent in the second quarter, beating an estimated 6.8 per cent growth from a poll of analysts by Reuters.

AXA Investment Managers raises its growth forecast to 6.7 per cent in 2017 after China’s second quarter data showed resilience in domestic demand. Tightening of housing market policies and monetary conditions failed to dampen investment growth, while consumer spending was buoyed by strong income growth, AXA analysts said.

Meanwhile President Xi Jinping said at the National Financial Work Conference, held on July 14-15, that China should steadily promote the yuan’s internationalisation, deepen reforms in the yuan exchange rate mechanism, and achieve yuan convertibility.

The Financial Work meeting also unveiled that a super regulator will be established under the State Council to coordinate between the regulators of banking, securities and insurance.

While the comments on the yuan are a repetition of previous official statements, the currency may still be headed for more volatility amid China’s focus on financial oversight and debt control, analysts said.

Strong growth data is a key reason behind the hawkish tone from policy makers. The statement by the National Financial Work Meeting highlighted that finance should be supporting the real economy and financial regulation should be increased. Policy may turn slightly tighter given the strength in growth, Goldman said.

The odds are for the State Council to lower the M2 target in 2018

“The odds are for the State Council to lower the M2 target in 2018,” ANZ said in research note. “Banks would tighten their credit policy in the near term, risking the cash flows of some borrowers. Credit risks would increase.”

The People’s Bank of China raised its daily reference rate by 0.3 per cent on Monday to 6.7562 per dollar.

Onshore yuan rose 0.08 per cent to 6.7741 per dollar, its strongest level since November and offshore yuan edged up 0.02 per cent to 6.7725.