Resurgent yuan approaches six-month high

Hong Kong — China’s yuan is shrugging off poor economic data to head for its strongest level in six months, but the gains are coming so fast they’re casting uncertainty over the rally’s longevity.

The currency rose as much as 0.42% to 6.7383 per dollar on Tuesday, in line for its highest close since July. It has rallied 1.8% in 2019, the third-best performer out of 11 Asian exchange rates tracked by Bloomberg. The advance comes amid a string of worse-than-expected economic numbers, spurring warnings from the likes of Mizuho Bank and Rabobank that a correction could be on the horizon.

“The yuan has reached its peak in the short term, as weak economic fundamentals won’t support a further rapid rally,” said Xia Le, Hong Kong-based chief Asia economist at Banco Bilbao Vizcaya Argentaria. Trade data could get “uglier” in the coming two quarters, he said. “The central bank may take measures, such as verbal warnings and window guidance, to slow the appreciation.”

China’s exports in dollar terms fell 4.4% in December from a year earlier and imports slumped 7.6%, the worst readings since 2016. Data on industrial profits, manufacturing, retail sales and producer prices have also been soft, adding to signs that fundamentals surrounding the Chinese economy have yet to respond to policy makers’ efforts to shore up demand.

The onshore yuan pared its gain to 0.15% as of 5.17pm trading at 6.7568 per dollar in Shanghai. The offshore rate was down 0.06%.

Bloomberg