Chinese Yuan Weakens Despite Positive Outlook, Continued Stimulus

The Chinese yuan is sliding against some of its most traded currency pairs on Monday. As the yuan weakens, there is a positive outlook for the Chinese economy on the market, particularly as Beijing confirming that it will continue to support its economy.

Industrial metals steel and iron ore soared on Monday after the federal government announced it would maintain stimulus support for the world’s second-largest economy. The Communist Party said it would support the country because it still faces “downward pressure” and difficulties – at home and abroad – even though China reported a better-than-expected first quarter. In the January-to-March period, the gross domestic product came in at 6.4%, buoyed by industrial output and consumer demand.
Analysts are anticipating additional economic stimulus packages in the coming weeks.
As part of efforts to rein in the credit market, the People’s Bank of China (PBOC) slashed some of its long-term funding it gives to banks, suggesting that it may curtail monetary stimulus and concentrate on fiscal injections. The PBOC rolled over half of the funds soon to mature through one-year medium-term lending and lent $24 billion for a week via reverse purchase agreements.
This comes only a couple of months after the PBOC cut its reserve-requirement ratios.
Overall, the overnight repurchase rate, a measurement of borrowing costs in the money market, surged to 3% for the first time since 2014. The seven-day repo rate declined.
For now, there is a positive sentiment regarding the yuan, especially as the currency has risen 1.9% against the US dollar in Q1 because of fiscal aid and stabilizing domestic growth. Outside investors are bullish on China, too, as foreign purchases of domestic shares totaled $24.5 billion last year, rising 85% from 2017, and foreign domestic investment hit $35.8 billion, a 3.7% increase from the previous year.
In the forex market, Chinese firms acquired $2.47 billion in foreign currencies in March, down from $15.18 billion in February. Additionally, these businesses sold $2.8 billion in foreign currencies.
The USD/CNY currency pair rose 0.07% to 6.7092, from an opening of 6.7044, at 19:12 GMT on Monday. The EUR/CNY advanced 0.2% to 7.5542, from an opening of 7.5394.

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