China's yuan inches up, market wary of outlook despite better-than-expected GDP data

SHANGHAI/SINGAPORE, April 18 (Reuters) - China's yuan inched higher against the dollar on Tuesday, while investors largely shrugged off better-than-expected domestic economic data as underlying momentum suggested an uneven post-COVID recovery. China's economy grew at a faster-than-expected pace in the first quarter, as the end of strict COVID curbs lifted businesses and consumers out of crippling pandemic disruptions, although global headwinds pointed to a challenging outlook. "While the headline GDP figure was upbeat, the March data pointed to an uneven recovery," said Ken Cheung, chief Asian FX strategist at Mizuho Bank. "Domestic consumption was proved to be the pillar to drive the economy recovery but industrial production was disappointing given the strong rebound in exports growth." Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8814 per dollar, 135 pips or 0.2% weaker than the previous fix of 6.8679.

In the spot market, the onshore yuan opened at 6.8758 per dollar and was changing hands at 6.8745 at midday, 72 pips firmer than the previous late session close.

The yuan hardly reacted to the GDP data, currency traders said, adding that expectations for widening China-U.S. yield differentials also capped the local currency's strength.

Those view were fed by a belief among some traders that Beijing could ease monetary policy further to aid the economic recovery - a contrast to the Federal Reserve which is likely to raise its policy rate once more in May.

"I think the data is overall good, including the headline figure, consumption and employment data," said Zhou Hao, economist at Guotai Junan International. "I think the monetary policy will continue to be supportive, and in general, chances of an interest rate cut are still relatively high." By midday, the global dollar index fell to 102.044 from the previous close of 102.103, while the offshore yuan was trading at 6.8801 per dollar.

The one-year forward value for the offshore yuan traded at 6.7108 per dollar, indicating a 2.52% appreciation within 12 months.

The yuan market at 0400 GMT:

ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8814 6.8679 -0.20% Spot yuan 6.8745 6.8817 0.10% Divergence from -0.10%
midpoint*
Spot change YTD 0.37% Spot change since 2005 20.39% revaluation

Key indexes:
Item Current Previous Change

Dollar index 102.044 102.103 -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 6.8801 -0.08%
*
Offshore 6.7175 2.44% 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 Tom Westbrook Editing by Shri Navaratnam)

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

Reuters

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