The Chinese yuan traded flat against the US dollar on Thursday, with COVID-19 lockdowns and lower economic growth forecasts weighing on the currency. Despite the latest developments, the yuan has held steady so far this year, which could leave some more for support amid rising inflationary fears in the US. But recent economic data has forced some investors to turn sour on Beijing.
The Caixin services purchasing managers’ index (PMI) fell to 42 in March, down from 50.2 in February – anything below 50 indicates contraction. The Caixin composite PMI also declined to 43.9 last month, down from 50.1 in February.
Both readings highlighted shrinking new orders, falling export sales, sliding employment, and accelerating input costs. Business confidence cratered to its lowest level in 19 months, mainly driven by concerns over how business operations will be impacted by the war in Ukraine and the recent coronavirus infections.
In other economic data, foreign exchange reserves held by the People’s Bank of China (PBoC) fell to $3.188 trillion in March, down from $3.214 trillion in the previous month. This is also lower than the median estimate of $3.2 trillion.
In the coming days, inflation, trade, and vehicle sales data will be released.
Meanwhile, looking ahead, a Nikkei and Nikkei Quick News survey forecasts that the Chinese economy will grow 5% in 2022, lower than the government’s official growth target of about 5.5% this year.
“The expanded spread of infections and the Ukrainian situation — in addition to the slowdown following [high growth] in the January-March quarter of 2021, increased downward pressure on the Chinese economy,” said Mihoko Hosokawa, research executive at Mizuho Bank (China), in the study.
Officials have turned on the taps again, effectively resuscitating fiscal and monetary stimulus and relief measures. This included injecting billions worth of liquidity into the financial system.
The USD/CNY currency pair was unchanged at 6.3605 at 20:50 GMT on Thursday. The EUR/CNY dropped 0.12% to 6.9205, from an opening of 6.9291.