The yuan closed 1.49 percent lower against the dollar in March, ending a nine-month winning streak and marking the biggest monthly decline in 19 months, Reuters news agency said.
Some analysts said the recent strength of the dollar has weighed on the yuan’s exchange rate. A Chinese bank trader said, “The dollar will continue to strengthen in the short term, but there is still a lot of demand for the settlement, the dollar is a little stronger, the settlement will come out some more, so the depreciation (of the yuan) will not be very drastic.” This wave of adjustment space may first to 6.6 yuan to 1 U.S. dollar.
Another foreign bank trader said that the previous market consensus bearish expectations of the dollar has been corrected, and the subsequent RMB will also fluctuate up in both directions.
Li Liu Yang, chief foreign exchange analyst of the financial market department of China Merchants Bank, believes that “the exchange rate above 6.60 provides a gradual layout opportunity for those trading on the left (counter-trend trading).” While the recent RMB pullback was mainly driven by the impact of the rebound in the US dollar on market sentiment, the fall in turnover in recent days also indicates that the exchange rate depreciation was driven more by hesitation in the demand for foreign exchange settlement rather than an increase in demand for foreign exchange purchases.
In March, the continued rise in U.S. bond yields drove the dollar strong, with the dollar index surging 2.59% in a single month to climb above the 93 mark, while the yuan depreciated 1.49% against the dollar to 6.5566 yuan in the same month.
The latest monthly report from CCB’s Financial Markets Department concluded that the RMB exchange rate is under pressure to depreciate in the medium term due to the strong US index and the complex international environment; it is expected that the RMB exchange rate is more likely to depreciate slightly in the near future, with a fluctuation range of 6.50 to 6.63 in April, but in the long term the RMB exchange rate does not have the basis for significant depreciation.
Before that, on March 30, Hong Kong’s “Hong Kong Economic Journal” quoted traders’ analysis that the hedge demand triggered by the explosion of hedge funds continued to push up the U.S. dollar near the 93 mark, while the U.S. bond yields continued to rise also supported the dollar, the short-term yuan or test the 6.6 mark support.
Some traders also said that if the dollar is strong in the short term, the yuan may fall or increase; in addition, China-US tensions are difficult to ease, the yuan may also face pressure next.
According to Reuters’ analysis, the strong trend of the yuan has changed and the yuan is facing a “catch-up” market. On the one hand, U.S. policy is boosting the dollar, and the outlook for the dollar seems to be getting more and more bullish; on the other hand, the political friction between the Communist Party of China and Europe and the United States may bring more impact on the yuan if it affects the economic level.
According to a Reuters survey of foreign exchange strategists, the dollar will continue to strengthen for at least another month, although in the longer term, analysts still predict a weaker dollar. The latest positions show that the net short position of the dollar of speculators in the currency market fell to the lowest level since June 2020.
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