The yuan ended almost unchanged against the dollar on Monday after a Chinese senior official said China's gross domestic product (GDP) was on course for 8 percent full-year growth.
Xiong Bilin from the National Development and Reform Commission said on Monday that China's GDP grew more than 7 percent in the first nine months and China would have no difficulty reaching the government's full-year GDP growth target of 8 percent.
Yao Jingyuan, chief economist of the National Bureau of Statistics said on the weekend that China would be able to sustain the momentum of its current V-shaped recovery, setting the stage for stronger growth next year than in 2009. "We can say with certainty that China's economy is over the worst," Yao told an economic forum. He identified November 2008 to February 2009 as the trough for the economy.
GDP figures for the third quarter are due on Thursday. According to the median forecast of 18 economists polled by Reuters, GDP is expected to grow 8.9 percent in the July-September quarter from a year earlier, compared with 7.9 percent in the second quarter. Ba Shusong, a senior research fellow at the Development Research Centre, a think tank under China's cabinet, told Reuters Television that the yuan would resume its modest appreciation as part of China's strategy of exiting from its ultra-loose pro-growth policy once the economy was definitely out of danger.
Spot yuan closed at 6.8267 against the dollar, almost unchanged from Friday's close of 6.8268. Before trading began, the Chinese central bank fixed the mid-point at 6.8275 versus the dollar, down marginally from Friday's 6.8270.
Dealers are closely looking at the third-quarter GDP figures for signs of a strengthening economic recovery, which could mean the People's Bank of China is closer to relaxing the tight grip its has kept on the yuan over the past year. "The market is waiting for the GDP data," said a dealer at an Asian bank in Shanghai. "The data may give hints of possible changes in currency policy propelled by the economy's development."
"However, the central bank is showing strong intentions of keeping the yuan stable now," he said. One-year dollar/yuan volatilities hit an intraday high at 5.60 percent bid on Monday, compared with 5.30 percent at Friday's close. Except for a few stray quotes over the past few months, the volatilities now imply the strongest expectation of yuan appreciation since July.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) hit a more than 14-month low of 6.5870, implying yuan appreciation of 3.65 percent in 12 months from the day's mid-point, the highest since 3.76 percent implied on August 14, 2008.