HONG KONG: China’s yuan weakened but steadied above a six-month low against the dollar on Friday, as investors waited to see what measures the government would roll out to support a slowing economy.
The yuan traded in a narrow range amid growing expectations that the government will roll out fiscal stimulus to shore up weak consumer demand and boost investment, after industrial output and retail sales data for May missed analysts’ forecasts.
The latest data affirmed a widely-held view that the post-pandemic recovery is stalling and raised expectations that the next move to boost the economy would come from the government, after the central bank cut the interest rate on its one-year medium-term lending facility and its seven-day reverse repo rate this week.
China’s cabinet is soliciting proposals from economists and advisers on fiscal stimulus measures, Reuters reported on Thursday.
“We expect China to introduce additional policy support to safeguard a continued economic recovery,” Standard Chartered said in a report on Friday. “(The government) is likely to further loosen housing policies” and support infrastructure investment growth.
The spot yuan opened at 7.1280 per dollar and was changing hands at 7.1364 at midday, 139 pips weaker than the previous late session close and 0.11% weaker than the midpoint.
The People’s Bank of China set the midpoint rate at 7.1289 per US dollar prior to market open, firmer than the previous fix 7.1489.
The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.
China’s yuan strikes 6-month low after PBOC cuts interest rate
The offshore yuan was trading slightly weaker than the onshore spot at 7.139 per dollar.
The global dollar index rose to 102.232 from the previous close of 102.115.
While policy divergence between the PBOC and other major central banks is weighing on the yuan, “policy tolerance for further depreciation from current levels may be reaching a limit,” said DBS analysts in a research note on Friday.
DBS expects Chinese banks to lower the loan prime rates, which are due to out next Tuesday, after keeping both the one-year and five-year rates unchanged last month for the ninth month in May.
The one-year forward value for the offshore yuan traded at 6.9329 per dollar, indicating a roughly 2.97% appreciation within 12 months.