Offshore Yuan Rises on Strong China Data

The offshore yuan stabilized around 7.34 per dollar as investors awaited key economic data scheduled for release later this week.

The spotlight is on China’s Q4 GDP, alongside updates on industrial production, retail sales, and the unemployment rate, all expected to provide deeper insights into the country’s economic health.

Earlier this week, the PBOC intensified short-term liquidity injections by injecting a net CNY 958.4 billion through seven-day reverse repurchase agreements.

This move aimed to offset the expiration of medium-term lending facilities, meet heightened cash demands during the peak tax season, address liquidity pressures ahead of the Lunar New Year, and ensure ample liquidity in the banking system.

Moreover, the central bank announced plans to enhance forex market management, curb disruptive activities, and mitigate risks of excessive yuan fluctuations.

It also raised the macro-prudential adjustment parameter to 1.75 to encourage overseas borrowing.

The offshore yuan edged lower to around 7.34 per dollar, snapping a two-session winning streak, as the People's Bank of China ramped up short-term liquidity injections amid a cash squeeze.

On Wednesday, the central bank injected a net CNY 958.4 billion through seven-day reverse repurchase agreements in daily open market operations.

This move aimed to offset the expiration of medium-term lending facilities, meet peak tax season demands, address heightened cash needs ahead of the Lunar New Year, and maintain ample liquidity in the banking system.

Meanwhile, the PBOC announced on Tuesday plans to enhance forex market management, curb disruptive behavior, and mitigate risks of yuan overshooting, while also raising the macro-prudential parameter to 1.75 to encourage overseas borrowing.

Investors are now focused on China's upcoming economic data, including Q4 GDP, industrial production, retail sales, and the unemployment rate, which are set to be released later this week.

The Malaysian ringgit may face continued pressure against the dollar due to its significant exposure to exports and tariff risks ahead of incoming U.S. President Donald Trump's inauguration, says Maybank's head of FX research Saktiandi Supaat. Also weighing on the ringgit will be Malaysia's trade ties with China, its second-largest export market, he notes, adding that the Chinese yuan may underperform compared to peers with tariff risks under Trump's return. However, Malaysia's fiscal consolidation, investment upcycle, a likely robust GDP growth and Bank Negara's potential decision to hold rates steady could lend support to the currency, he says. Maybank forecasts USD/MYR at 4.600 by 1Q, 4.700 in 2Q, 4.550 in 3Q and 4.450 by 4Q. The currency pair is 0.2% lower at 4.5010. (yingxian.wong@wsj.com)

The offshore yuan remained steady below 7.33 per dollar as traders await key data releases this week to assess the impact of recent stimulus measures and gauge potential signs of economic improvement.

The PBOC plans to strengthen forex market management, curb disruptive behavior, and prevent yuan overshoot risks, while boosting overseas borrowing by raising the macro-prudential parameter to 1.75.

Additionally, the central bank will issue a record amount of bills in Hong Kong this week to absorb offshore liquidity and boost yuan demand, while suspending government bond purchases to curb falling yields.

China’s securities regulator also pledged to prioritize market stability in 2025, collaborating with the PBOC on funding facilities to support stock purchases and revitalize market momentum after a weak start to the year.

Traders are now focused on upcoming Q4 Chinese GDP figures and December activity data, including industrial output and retail sales, set for release later this week.

The offshore yuan held steady around 7.33 per dollar after China ramped up support for the currency, issuing a warning and adjusting capital controls following its drop near a record low.

The People’s Bank of China (PBOC) and other regulators plan to strengthen foreign-exchange market management, address disruptive behavior, and prevent yuan overshoot risks.

The central bank also raised the macro-prudential parameter for cross-border funding to 1.75, allowing more overseas borrowing.

These moves aim to support the yuan amid a weaker economy, a stronger dollar, and US tariff concerns.

To counter this, the PBOC has been fixing the reference rate above 7.2 and plans a record bill issuance in Hong Kong to boost yuan demand.

Meanwhile, latest data showed China's trade surplus surged to USD 104.84 billion in December 2024, up from USD 75.31 billion a year earlier, exceeding expectations and marking the largest surplus since February.

The offshore yuan stabilized around 7.35 per dollar following the People’s Bank of China’s unexpected announcement to temporarily pause government bond purchases due to a supply shortage.

This surprise move follows months of PBOC bond purchases to manage liquidity and warnings about potential bubbles in the bond market, where long-dated yields repeatedly hit record lows as investors shifted to safe assets in a weakening economy.

The central bank stated that purchases would resume based on supply and demand conditions in the government bond market.

On the economic front, data released Thursday showed China’s annual consumer prices edged down to 0.1% in December 2024 from 0.2% in the prior month, matching market expectations and marking the lowest inflation since March.

Meanwhile, producer prices fell 2.3% year-on-year, a smaller decline than November’s 2.5%, and marking the 27th consecutive month of producer deflation but the softest contraction since August.