HONG KONG: China’s yuan firmed on Wednesday as strong factory activity data reaffirmed investors’ optimism that the government’s economic measures to stabilize the pandemic-hit economy are beginning to pay off, paving the way for a strong rebound.
Factory activity in February grew at the fastest pace since April 2012, as the official manufacturing purchasing managers’ index rose to 52.6 compared from 50.1 in January, beating the consensus forecast from a Reuters poll of analysts.
The latest data confirms that the flashes of domestic demand seen since the zero-COVID policy ended are now strong enough to rekindle upstream sectors.
An index reading above 50 indicates expansion in activity on a monthly basis and a reading below indicates contraction.
“With the Chinese authorities focused on turning the economy around this year, expect further stimulus and evidence of economic recovery to boost yuan sentiment,” Maybank analysts said in a research note.
The spot yuan opened at 6.9423 per dollar and was changing hands at 6.9274 at midday, 61 pips stronger than the previous late session close and 0.18% stronger than the midpoint.
The People’s Bank of China set the midpoint rate at 6.94 per US dollar prior to market open, firmer than the previous fix 6.9519. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.
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On Wednesday Moody’s Investors Service raised its forecast for China’s real gross domestic product (GDP) growth to 5.0% for both 2023 and 2024, up from its previous projections of 4.0%, citing the lifting of the country’s COVID-19 related restrictions late last year.
All eyes will now focus on the annual meeting of the National Party Congress, China’s parliament, slated to begin on Sunday in Beijing.
During the week-long congress the govenrment is expected to unveil its GDP growth forecast for this year.
“If the 2023 target is around 5.5% then the investors will consider that in-line with general market expectations, whereas a 5% target may disappoint,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.
Most Chinese provinces aim for economic growth of above 5% this year, according to local government work reports, as previously reported by Reuters.
The world’s second-largest economy grew 3% in 2022, marking one of its slowest growth rates in nearly half a century.
The global dollar index rose to 104.952 from the previous close of 104.869.
The offshore yuan was trading 0.16% weaker than the onshore spot at 6.9383 per dollar.
The one-year forward value for the offshore yuan traded at 6.7601 per dollar, indicating a roughly 2.64% appreciation within 12 months.
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