Rising yuan smashes every key level in sight


The currency rises to a more than five-month high for the first time since August
Chief Investment Office14 Jan 2020
Photo credit: AFP Photo


With a trade deal nearly signed and China’s economy on steadier footing, the path for China’s yuan to strengthen is now wide open.

The currency rose to a more than five-month high Monday (13 January), punching past 6.9 per dollar for the first time since August. It held those gains in offshore trading Tuesday after the Trump administration removed China from its designation as a currency manipulator. The move came ahead of the expected signing of the long-awaited phase one US-China trade agreement in Washington Wednesday.

Along with easing trade tensions, the exchange rate has strengthened thanks to rising confidence that China has arrested an economic slowdown. The yuan Monday climbed for a fourth session vs a basket of trading partners’ currencies. Some now predict the currency will touch 6.8 per dollar within three months – a level not seen since May last year.

China’s currency weakened past the key 7 per dollar level for the first time in a decade in August, when tensions between the two nations escalated. The yuan’s slide last year reignited one of Trump’s favourite criticisms of China: that Beijing weakens its currency to aid exporters.

Now, investor optimism over the economy and trade has kept the currency on the strong side of 7 for more than two weeks. With technical indicators flashing bullish signals, multiple measures of expected volatility are hovering near their lowest in about five months, signalling a reluctance among traders to hedge against swings. The yuan has gained more than 4% since September’s nadir.

Expectations that authorities will add to policies supporting growth – while staying clear of large-scale monetary stimulus – are also boosting sentiment for the yuan. The median forecast of analysts surveyed by Bloomberg is for the yuan to end 2020 at 6.95. – Bloomberg News.

The US Dollar Index (DXY) lost 0.01% to 97.345 on Monday, the euro climbed 0.12% to USD1.1134, the pound shed 0.57% to USD1.2989, and the yen weakened 0.46% to 109.95 per dollar.

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