Tags: China | stimulus | currency | yuan

China's Yuan Posts Biggest Daily Gain in Nearly 30 Months on Stimulus Hopes

Monday, 24 Mar 2014 09:46 AM

China's yuan rebounded sharply against the dollar on Monday with its biggest daily gain in nearly 30 months, boosted by speculation the Chinese government may soon unveil stimulus measures to support the faltering economy.

The yuan closed at 6.1888 per dollar, up 0.6 percent from Friday's close at 6.2250, the biggest jump since October 2011. It hit 6.1882 in afternoon trade.

The Chinese currency fell to a 13-month low last week with a 1.2 percent weekly loss, its biggest-ever weekly drop as investors fretted over the outlook on the world's second-largest economy. A run of disappointing data showing China's economy lost steam at the start of 2014, and the country's first domestic bond default and subsequent media reports of trouble at other companies have added to pressure in its financial markets.

A preliminary private survey showing weak activity in China's factories on Monday also piled on pressure, raising expectations of government stimulus to arrest a loss of momentum this year. The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to an eight-month low of 48.1 in March from February's final reading of 48.5. The index has been below the 50 level since January, indicating a contraction in the sector this year.

"The weaker-than-expected flash PMI reading in March adds downward bias to the near-term growth outlook," said Zhu Haibin, an analyst at JP Morgan. "We expect Beijing to introduce a series of pro-growth measures to stabilize growth."

The People's Bank of China is widely believed to have engineered a sudden and sharp fall in the yuan in recent weeks to punish speculators who have seen the currency as a one-way appreciation bet, after it gained some 30 percent since 2005. The big loss of 2.8 percent from the beginning of the year to Friday has wiped out almost all its gains made in 2013, and comes as global investors grow increasingly worried that China's economy is losing momentum faster than expected.

The yuan exchange rate will be more and more determined by the market and the PBOC's decisive role on the exchange rate will weaken, said Yi Gang, a vice governor of the central bank, on Saturday. The PBOC fixed the mid-point at 6.1452 on Monday, up 0.04 percent from Friday's 6.1475, breaking a four-day falling streak.

"The RMB exchange rate, which hit 1-year lows last week but stabilized on Friday, is likely to consolidate or rebound today and this week," said Dariusz Kowalczyk, a senior strategist at Credit Agricole, referring to the Chinese currency.

The strength of the yuan was also in line with the performance in the stock market as the China Enterprises Index of the top Chinese listings in Hong Kong rose 2.8 percent, its largest daily gain since Nov. 18. The non-deliverable forwards market, a venue global investors use to bet on future yuan movements, suggests the yuan will settle at 6.2037 in a year's time on Monday, gaining slightly from a low of 6.2405 seen on Thursday.

However, analysts ruled out a substantial strengthening of the yuan in the near term, citing a series of weak economic indicators from China, from exports to factory activity, which are likely to cap any upside for the currency.

"We expect the CNY to stay weak in Q2. Increased uncertainty on the CNY outlook, concerns about China's growth and financial risks, together with reduced onshore-offshore interest rate differentials, point to smaller inflows and depreciation pressures," Chang Jian, an analyst at Barclays, said.

© 2017 Thomson/Reuters. All rights reserved.

 
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China's yuan rebounded sharply against the dollar on Monday with its biggest daily gain in nearly 30 months, boosted by speculation the Chinese government may soon unveil stimulus measures to support the faltering economy.
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2014-46-24
Monday, 24 Mar 2014 09:46 AM
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