China’s yuan weakens as slower inflation revives doubt on growth

HONG KONG — The yuan weakened on

Thursday after China’s posted the slowest annual consumer price

inflation in a year, fanning doubts about the pace of economic

recovery, at a time when investors are concerned that U.S.

interest rates could be raised more aggressively.

The Consumer price index (CPI) for February was 1.0% higher

than a year earlier, rising at its slowest since February 2022

and below median estimate for a rise of 1.9% given by a Reuters

poll. The producer price index (PPI) in February fell 1.4% from

a year earlier, marking a fifth consecutive month of producer

price deflation.

While falling inflation could leave room for the central

bank to cut rates, such expectations have fallen by the way side

after the a moderate target of 5% annual economic growth was set

by the government at the opening of the National People’s

Congress on Sunday, said Alvin Tan, head of Asia currency

strategy at RBC Capital Markets.

“As the government has set an annual growth target at the

lower end of expectations, I don’t expect that authorities would

feel compelled to boost growth significantly” through rate cuts

or stimulus, said Tan.

The spot yuan opened at 6.9600 per dollar and was

changing hands at 6.9671 at midday, 106 pips weaker than the

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previous late session close and 0.01% away from the midpoint.

The People’s Bank of China set the midpoint rate

at 6.9666 per U.S. dollar prior to market open, weaker than the

previous fix 6.9525 and the weakest in over two months. The spot

rate is currently allowed to trade within a range 2% above or

below the official fixing on any given day.

U.S. Federal Reserve Chair Jerome Powell on Wednesday

reaffirmed his message of higher and potentially faster interest

rate hikes. He emphasized that debate was still underway with a

decision hinging on data to be issued before the U.S. central

bank’s policy meeting on March 21-22.

The market is keenly watching whether the Fed will raise its

policy rate by 25 basis points or more.

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Investors reckon that U.S. rates staying high for longer

would weigh on the yuan.

The offshore yuan was trading 0.15% weaker than the

onshore spot at 6.9773 per dollar.

The one-year forward value for the offshore yuan

traded at 6.7811 per dollar, indicating a roughly 2.89%

appreciation within 12 months.

The global dollar index was 105.629, slightly below

the previous close of 105.658.

The yuan market at 3:40AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint

-0.20%

6.9666 6.9525

Spot yuan

-0.15%

6.9671 6.9565

Divergence from

midpoint*

0.01%

Spot change YTD

-0.96%

Spot change since 2005

revaluation 18.79%

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan

* -0.15%

6.9773

Offshore

non-deliverable 2.62%

forwards 6.7885

**

*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 Georgina Lee; Editing by Simon Cameron-Moore)