Yuan looks set for first weekly gain since mid-Jan as recovery gains traction

SHANGHAI, March 3 (Reuters) - China's yuan inched higher against an easing dollar on Friday and looked set for the first weekly gain since mid-January, underpinned by expectations Beijing will set an ambitious growth target for this year. Sources involved in policy discussion told Reuters that China is becoming increasingly ambitious with its 2023 growth target, aiming potentially as high as 6%, in a bid to boost investor and consumer confidence and build on a promising post-pandemic recovery. Currency traders said the 6% target was at the upper end of market expectations ranging from 5% to 6%, suggesting that the authorities were very confident of a strong economic rebound this year. Recent data shows activity is bouncing back at a better-than-expected pace. "The economic targets that Beijing will unveil at the Two Sessions in early March will likely illustrate the government's resolve to deliver a strong recovery in domestic demand," said Eugenia Victorino, head of Asia strategy at SEB. "This should provide a yet another boost to the yuan. We hold on to our view that USD/CNY will trade towards 6.60 by end-2023." On Sunday, Premier Li Keqiang is due to deliver the 2023 government work report to the annual parliamentary session, which will include key economic goals and policy priorities. Prior to the market opening, the People's Bank of China (PBOC) set the yuan midpoint rate at 6.9117 per dollar, 309 pips or 0.45% weaker than the previous fix of 6.8808.

In the spot market, the onshore yuan opened at 6.8940 per dollar and was changing hands at 6.9060 at midday, 133 pips firmer than the previous late session close. If the yuan finishes the late night close at the midday level, it would have gained 0.83% versus the dollar for the week, snapping five straight weeks of losses. Traders also said the central bank's reiteration of a stable yuan and pledge not to resort to flood-like stimulus also supported the local unit in morning deals. PBOC Governor Yi Gang said on Friday that China will keep the yuan exchange rate "basically stable" this year, while volatility will be market-driven. By midday, the global dollar index fell to 104.891 from the previous close of 105.027, while the offshore yuan was trading at 6.9118 per dollar.

The one-year forward value for the offshore yuan traded at 6.7322 per dollar, implying a 2.67% appreciation within 12 months.

The yuan market at 0402 GMT:

ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.9117 6.8808 -0.45% Spot yuan 6.906 6.9193 0.19% Divergence from -0.08%
midpoint*
Spot change YTD -0.09% Spot change since 2005 19.85% revaluation

Key indexes:
Item Current Previous Change

Dollar index 104.891 105.027 -0.1

*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET

Instrument Current Difference from onshore Offshore spot yuan 6.9118 -0.08%
*
Offshore 6.7366 2.60% non-deliverable
forwards
**

*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
(Reporting by Winni Zhou and Brenda Goh; Editing by Kim Coghill)

Messaging: winni.zhou.thomsonreuters.com@reuters.net))

Reuters

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Yuan looks set for first weekly gain since mid-Jan as recovery gains traction

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