HONG KONG: China’s yuan firmed on Friday against the US dollar, as traders remained optimistic about more measures to support the economy from the ongoing Central Economic Work Conference where top government officials discuss policy direction for next year.
The closed-door, two-day annual meeting is expected to end on Friday, and comes at a time when the government has announced measures to transition out of its zero-COVID policy which has been hindering growth.
Economic growth is expected to continue picking up pace following the implementation of new COVID rules, the National Development and Reform Commission said on Friday.
Adding credence to expectations that China’s central bank will ramp up liquidity support to spur growth, the People’s Bank of China (PBOC) rolled over maturing medium-term policy loans on Thursday while keeping the interest rate unchanged for the fourth straight month, resulting in a net 150 billion yuan ($21.52 billion) fresh fund injection into the banking system.
“The PBOC will focus more on injecting funds to maintain the current liquidity rather than pushing the interest rate significantly laxer” as the key to support growth is through channeling liquidity, said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, in a report on Thursday.
China’s yuan eases as signs of economic deterioration hurt confidence
The spot yuan opened at 6.9850 per dollar and was changing hands at 6.9730 at midday, 30 pips stronger than the previous late session close and -0.09% away from the midpoint.
The PBOC set the midpoint rate at 6.9791 per US dollar prior to market open, weaker than the previous fix of 6.9343. The spot rate is currently allowed to trade in a 2% range above or below the official fixing on any given day.
The global dollar index fell to 104.371 from the previous close of 104.558.
Natixis expects China’s economic growth to accelerate to 5.5% in 2023, and the yuan to rebound in the first quarter due to moderating US dollar strength.
The offshore yuan was trading 0.07% weaker than the onshore spot at 6.979 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.822, 2.30% stronger than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.