Yuan hits 4-year high as strong GDP data tempers need for stimulus

China's yuan strengthened against the US dollar on Monday to its firmest in more than four years, buoyed by better-than-expected third-quarter economic growth that eased pressure on policymakers to roll out more aggressive stimulus.

The economy expanded 4.5 percent year-on-year in the third quarter, topping forecasts and reducing the urgency for Beijing to step up support to meet its annual growth target. Retail sales for September also accelerated. 

"The September data do suggest that the economy regained momentum at the end of the third quarter and we expect a further acceleration over the coming months as increased fiscal support kicks in," analysts at Capital Economics said in a note.

The spot yuan opened at 6.6853 per dollar and was last trading at 6.6826 as of 0215 GMT, its strongest since July 2022, and 44 pips firmer than the previous late-session close.

Prior to the market opening, the People's Bank of China set the midpoint rate at 6.7208 per dollar, its strongest since February 2, 2023, and 311 pips weaker than a Reuters estimate. 

The offshore yuan traded at 6.6818 per dollar, up about 0.08 percent in Asian trade.

The dollar fell last week, logging its first weekly decline in more than a month against the euro and the yen, reflecting fading expectations for a Federal Reserve rate hike and lingering concerns about an AI-driven equity selloff. The dollar index, which measures the greenback against a basket of six currencies, was 0.010 percent higher at 101.81. 

The trade surplus and corporate conversion of dollars to yuan remain key pillars of support for the currency, analysts at Huatai Futures said in a note.

"But with the China-US interest rate gap staying wide and the Fed still potentially raising rates this year, the pace of yuan appreciation is likely to keep slowing, pointing to firm but range-bound trade in the near term rather than a one-way acceleration higher."

Investors are turning their attention to a key financial forum in Beijing this afternoon, where the PBOC governor and the head of the State Administration of Foreign Exchange are due to speak, offering clues on the country's monetary and currency policy path.

China's central bank chief pledged last week to further open up the country's vast financial markets, saying in a speech that yuan assets can meet global investors' growing need for diversification amid trade uncertainty.

Reuters

𝗗𝗼𝘄𝗻𝗹𝗼𝗮𝗱 𝗧𝗵𝗲 𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱 𝗔𝗽𝗽 ↓