SHANGHAI/SINGAPORE – 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 percent 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-USyield 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 percent appreciation within 12 months.
Meanwhile, China’s fiscal revenue rose in March, reversing a decline in January-February, as economic activity rebounded following the end of strict COVID curbs, but the finance ministry warned that revenue growth would slow in the second half of the year.
Fiscal revenue rose 0.5 percent in the first three months of 2023 versus the same period a year earlier, while fiscal expenditure rose 6.8 percent on year.
In March, fiscal revenue grew 5.5 percent after declining 1.2 percent in January-February, according to Reuters calculations based on the ministry’s data.
China’s economy grew at a faster-than-expected pace in the first quarter of the year, as consumers came out of crippling pandemic disruptions with a 4.5 percent rise in Q1 gross domestic product (GDP), although headwinds from a global slowdown point to a bumpy ride ahead.
“China’s economic rebound provides fundamental support for fiscal revenue growth, and the fiscal revenue growth will slow down in the second half of the year,” officials from the finance ministry said at a news conference.
In the second half of the year, the ministry said they will approve budgets in a timely way, speed up the issuance and use of special local government bonds and improve preferential treatment for taxes and fees. — Reuters
