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Yuan halts eight-day drop as GDP data signal economy stabilising

Wednesday, October 19, 2016 - 10:33
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The yuan halted this year's longest run of losses as Chinese economic data from gross domestic product to retail sales indicated stabilisation.

[HONG KONG] The yuan halted this year's longest run of losses as Chinese economic data from gross domestic product to retail sales indicated stabilisation.

The onshore exchange rate climbed 0.07 per cent to 6.7369 a dollar, ending an eight-day run of declines that saw it weaken 1.1 per cent, while the offshore rate was little changed. The currency declined for a fourth day against a trade-weighted index.

Gross domestic product rose 6.7 per cent in the third quarter from a year earlier, matching a projection by economists Bloomberg surveyed and right in the middle of the government's 2016 goal of 6.5 per cent to 7 per cent growth.

Services industries paced the expansion in the first three quarters, with the sector growing 7.6 per cent.

"The data, which are mostly in line with expectations and with industrial production being weaker, won't help alleviate depreciation pressures," said Gao Qi, a Singapore-based foreign-exchange strategist at Scotiabank.

"The economy will likely continue to weaken next year, so the yuan will drop in the short-term."

Recent data have sent conflicting signals on China's economy, with the plunge in exports contrasting with the first increase in factory gate prices since 2012.

Industrial output increased 6.1 per cent from a year earlier in September, compared with analysts' median projection for a 6.4 per cent rise.

Chinese consumers - a major pillar behind the economy's recent resilience - remained a prop, with retail sales rising 10.7 per cent last month from a year earlier.

"The PBOC will allow the yuan to weaken against the greenback," Zhou Hao, an economist at Commerzbank AG in Singapore, said before the data.

"China needs a lower exchange rate to support exports. But at the same time, the authorities will keep the yuan stable versus the basket, because depreciation expectations can grow quickly if the currency drops against both the dollar and peers."

The PBOC injected funds in open-market operations for the first time in more than a week, pumping in a net 40 billion yuan (S$8.204 billion) on Wednesday, data compiled by Bloomberg show.

The overnight repurchase rate, a gauge of funding availability in the financial system, fell three basis points to 2.22 per cent, according to weighted average prices.

BLOOMBERG