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China's yuan firms, property support moves brighten outlook

Reuters · 01/05/2023 23:04
China's yuan firms, property support moves brighten outlook

By Georgina Lee


- China's yuan firmed against the greenback on Friday on investor optimism that recent policy support measures extended to the troubled property sector will bolster an economic recovery this year.

China's central bank and the banking and insurance regulator said on Thursday they have established a dynamic adjustment mechanism on mortgage rates for first-time home buyers in a bid to further support the property sector.

The floor on mortgage rates can be lowered or abolished for first-time home buyers in cities where the selling prices of homes have been falling.

The latest move adds to a slew of measures announced since November as the government moves to extend a lifeline to the sector after many developers defaulted on their debt obligations.

"The market is looking past the waves of COVID-19 cases and focusing on how China's growth could pick up this year. The central bank could be very forceful in its monetary measures to support growth and definitely is taking steps to reduce lending costs," said Khoon Goh, head of Asia research at ANZ.

The spot yuan CNY=CFXS, which hit a four-month high reached earlier this week, opened at 6.8801 per dollar and was changing hands at 6.8577 at midday, 0.35% or 243 pips stronger than the previous late session close and -0.49% away from the midpoint.

The People's Bank of China set the midpoint rate CNY=PBOC at 6.8912 per U.S. dollar prior to the market open, firmer than the previous fix 6.8926. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.

Standard Chartered said it expects China's GDP growth to rise to over 5% for 2023, and that the central bank will again cut the reserve requirement ratio, or the amount of cash that banks must hold as reserves, by 25 basis points in the first half to free up more funds for lending.

The World Bank forecasts economic growth slowed to just 2.7% in 2022, weighed down by repeated COVID lockdowns which disrupted production and dampened demand. But the government abruptly began dismantling its tough anti-COVID measures in early December.

"The economic recovery will be supported by a rebound in domestic consumption following its exit from zero-COVID, (and)stabilisation of the real estate sector on policy support," StanChart analysts including Becky Liu and Edward Pan wrote in a report published on Thursday.

The global dollar index .DXY fell to 105.024 from the previous close of 105.042.

The offshore yuan CNH=D3 was trading 0.03% weaker than the onshore spot at 6.86 per dollar.

Offshore one-year -deliverable forwards contracts (NDFs)CNY1YNDFOR=, considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.7011, 2.84% away from the midpoint.

One-year NDFs are settled against the midpoint, the spot rate.



The yuan market at 3:15AM GMT:


ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC


6.8912


6.8926


0.02%

Spot yuan CNY=CFXS


6.8577


6.882


0.35%

Divergence from midpoint*


-0.49%

Spot change YTD




0.62%

Spot change since 2005 revaluation



20.69%


OFFSHORE CNH MARKET

Instrument

Current

Difference from onshore

Offshore spot yuan CNH= *


6.86


-0.03%

Offshore -deliverable forwards CNY1YNDFOR= **


6.7011


2.84%


*Premium for offshore spot over onshore CNY=CFXS

**Figure reflects difference from PBOC's official midpoint, since -deliverable forwards are settled against the midpoint. CNY=SAEC.










(Reporting by Georgina Lee; Editing by Kim Coghill)

((Georgina.Lee@thomsonreuters.com;))