Yuan to strengthen against the USD when growth optimism returns – HSBC

USD/CNY broke above the 6.90 handle. Economists at HSBC expect the Yuan to strengthen against the Dollar when risk appetite improves amid strong data and pro-growth measures.

Awaiting new catalysts for growth optimism

“Although geopolitical tensions may not dissipate any time soon, we think the start of the National People's Congress (NPC) on 5 March 2023, together with upcoming economic data releases (such as China’s official PMIs for February on 1 March, trade data on 7 March, inflation data on 9 March, and a series of activity data from retail sales, industrial production to urban fixed asset investment in mid-March), could ensure growth optimism returns, which should help shore up the CNY.”

“High-frequency data in February point to a continued recovery in intra-city traffic and industrial production. Home prices in big cities have also shown signs of a rebound. For the upcoming NPC, we expect the government to announce a GDP growth target of ‘above 5%’ and a larger budget deficit of 3.2% (from 2.8% in 2022). This should reassure investors that a pro-growth mind-set will remain at the fore, probably supporting the Yuan.”