Key Takeaways
- China’s yuan hit its strongest level in over four years.
- Third-quarter economic growth exceeded expectations, easing stimulus pressure.
- Analysts expect further acceleration in economic momentum.
China’s yuan strengthened significantly on Monday, reaching its strongest level in over four years, according to market data. The currency opened at 6.6853 per dollar and was last trading at 6.6826 as of 0215 GMT, its highest since July 2022.
The economy expanded by 4.5% year-on-year in the third quarter, surpassing forecasts and reducing the urgency for policymakers to implement additional stimulus measures. Analysts at Capital Economics noted that the September data suggest the economy regained momentum at the end of the third quarter and are expecting further acceleration in the coming months.
Retail sales for September also showed an acceleration, contributing to the overall economic growth. The People’s Bank of China (PBOC) set the midpoint rate at 6.7208 per dollar, its strongest since February 2, 2023, and 311 pips weaker than a Reuters estimate.
The strengthening of the yuan is supported by the trade surplus and corporate conversion of dollars to yuan, according to analysts at Huatai Futures. However, the wide China-US interest rate gap and potential Fed rate hikes this year are expected to slow the pace of appreciation, pointing to firm but range-bound trade in the near term.
Despite the robust economic performance, investors are turning their attention to a key financial forum in Beijing this afternoon. The PBOC governor and the head of the State Administration of Foreign Exchange are scheduled to speak, offering insights into the country’s monetary and currency policy path.
In a recent speech, the PBOC chief pledged to further open up China’s financial markets, stating that yuan assets can meet global investors’ growing need for diversification amid trade uncertainty.
