China’s yuan eases, markets wait on detailed fiscal measures

SHANGHAI: China’s yuan weakened against the dollar on Monday, weighed down by persistent deflationary pressure,...
14 Oct, 2024

SHANGHAI: China’s yuan weakened against the dollar on Monday, weighed down by persistent deflationary pressure, while investors considered the economic implications of the fiscal measures announced over the weekend.

China’s consumer inflation unexpectedly eased in September, while producer price deflation deepened, heightening pressure on Beijing to roll out more stimulus measures quickly to revive flagging demand that has hamstrung the economy.

Markets were also assessing the financial stimulus plans announced on Saturday, with many investors once again disappointed by absence of details around the programme.

As of 0323 GMT, the onshore yuan was 0.13% lower at 7.0758 to the dollar after trading in a range of 7.0722 to 7.0829, while its offshore counterpart eased to 7.0837 yuan per dollar.

“The prospect of more aggressive fiscal stimulus measures from China should continue to support Chinese equity markets and growth sensitive currencies and risk assets,” Win Thin, global head of currency strategy at Brown Brothers Harriman, said in a note.

“However, until the size and target of the additional fiscal package are clear, these assets are unlikely to see any further significant gains,” he said.

Analysts and investors expect detailed fiscal spending measures are likely to be unveiled at a meeting of the Standing Committee of the National People’s Congress later this month.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0723 per dollar, 1 pip weaker than a Reuters’ estimate of 7.0722.

China’s yuan firm against dollar

“We think USD/RMB will be in a holding pattern until the US election outcome but the risk in the near term is skewed to the upside,” said Joey Chew, head of Asia FX research at HSBC.

“China will release a bunch of September data in the coming week or so. Soft activity data will likely make the market more impatient for concrete fiscal stimulus measures.”

China is due to release September import and export data later in the session, and credit lending data is also expected this week.

Currency traders said uncertainty around the US election has seen a surge in volatility of one-month dollar/yuan options , as bilateral relations between the world’s two largest economies remain a key factor in deciding the yuan’s outlook.

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