Export data for the two months of January and February, due out later on Tuesday, are expected to show a decline of 9.4% from a year earlier, only slightly better than the 9.9% annual drop recorded in December, which was the worst performance since February 2020. Commerce Minister Wang Wentao warned on Friday that downward pressure on the country's imports and exports would increase significantly this year as the risk of a global recession and weakening external demand was growing. Additionally, "the yuan sentiment is undermined by the disappointing growth target set for 2023 that dampened expectations for significant stimulus this year," Maybank analysts said in a research note on Tuesday. The spot yuan opened at 6.9400 per dollar and was changing hands at 6.9395 at midday, 60 pips weaker than the previous late session close and 0.35% away from the midpoint.
The People's Bank of China set the midpoint rate at 6.9156 per U.S. dollar prior to market open, weaker than the previous fix of 6.8951. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day. At the annual conference of the National People's Congress on Sunday, China set a modest target for economic growth this year of around 5%, after the world's second largest economy grew at 3% in 2022, one of its slowest rates in decades. "The modest growth target partly reflects a sober assessment by the leadership regarding the challenges facing the economy" such as the continued drag from weak real estate investment, and uncertain external demand, Barclays' analysts said in a research note.
Barclays expects China's central bank to step up its efforts to stabilize credit growth. One way is through cutting the reserve requirement ratio, or the level of deposits that banks must hold as reserves at the central bank, by 25-50 basis points this year.
The global dollar index fell to 104.228 from the previous close of 104.35.
The dollar index was little changed as investors await Fed Chair Jerome Powell’s semi-annual testimony before the Senate slated for Tuesday and Wednesday, as they search for cues on whether the central bank could reaccelerate the pace of rate hikes in response to the tight labour market data. The January unemployment rate hit more than a 53-1/2-year low of 3.4%. The offshore yuan was trading 0.06% weaker than the onshore spot at 6.944 per dollar.
The one-year forward value for the offshore yuan traded at 6.7625 per dollar, indicating a roughly 2.68% appreciation within 12 months. The yuan market at 0327 AM GMT:
ONSHORE SPOT: Item Current Previous Change PBOC midpoint -0.30% 6.9156 6.8951
Spot yuan -0.09%
6.9395 6.9335
Divergence from
midpoint*
0.35%
Spot change YTD
-0.57%
Spot change since 2005
revaluation 19.27%
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan
* 6.944 -0.06%
Offshore
non-deliverable 6.771 2.14%
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 Georgina Lee; Editing by Christian Schmollinger)
