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

Bloomberg.- Forget yuan devaluation. Key Chinese 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.

China’s economy is estimated to have expanded 6.8 percent in the January-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 China 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 U.S. dollar, 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 U.S. 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 U.S. It will at least make it harder for the U.S. 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, Malaysia 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

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