China GDP will signal yuan is doing just fine and may even rally

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(April 13): Forget yuan devaluation. Key growth data next week may even support the case for more appreciation, particularly after President Xi Jinping’s remarks this week to further open up the economy.

  • ’s economy is estimated to have expanded 6.8% in the -March period for the third straight quarter, carrying on the momentum from 2017 which saw annual growth accelerate for the first time in 7 years. People’s Bank of Governor Yi Gang said on Thursday that economic indicators have performed better than expected in the first quarter
  • The growth story coincides with a foreign-exchange policy that has seen the yuan advancing against its currency basket since mid-2017. Last month, it reached 6.2418 against the , its strongest level since August 2015
  • Potential capital inflows from measures outlined by PBOC Governor Yi on Wednesday should further support the yuan. These include plans to introduce a Shanghai-London stock connect within the year and a higher quota for the Mainland-Hong Kong version
  • A report this week that China is looking into devaluing the yuan in response to a potential trade war with the US would mark a big step back from its currency liberalization program. As recently as January, the PBOC tweaked its management of the yuan fixing mechanism, illustrating its desire to press ahead with reforms
  • Besides, the authorities will hardly want a repeat of the exodus of capital outflow after a “one-off” yuan devaluation in 2015
  • A stronger yuan will help China at the negotiation table with the US. It will at least make it harder for the US to classify the Asian nation as a foreign-exchange manipulator in the Treasury’s upcoming semi-annual report
  • With all the above in mind, far from seeking a weaker currency, China looks set to allow further appreciation in the yuan

Below are key Asian economic data and events due next week:

  • Monday, April 16: BOJ’s Amamiya speaks, Philippine overseas worker remittances, Indonesia trade balance, India wholesale prices
  • Tuesday, April 17: China 1Q GDP, March retail sales, industrial production and fixed assets ex-rural, RBA minutes, New Zealand house sales, Japan industrial production, Singapore NODX
  • Wednesday, April 18: Australia skilled vacancies, Japan trade balance, CPI
  • Thursday, April 19: Australia employment and NAB 1Q business confidence, New Zealand 1Q CPI, Philippine BoP overall, Bank Indonesia rate decision
  • Friday, April 20: Japan CPI

 

Source: The Edge



 





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