As the U.S. currency index continues to weaken, the onshore yuan, reflecting the mainland market, rose through the 6.5 barrier on Tuesday (20), closing 162 pips higher. Analysts believe that the fall in U.S. bond yields has made the U.S. dollar less attractive and the yuan has rebounded in line with the trend. UBS is optimistic about the future market of the yuan and expects the yuan to climb to the level of 6.4 by the end of this year, which is about 82 yuan per 100 Hong Kong dollars.
However, SMBC Nikko Securities warned that China may start to lead global inflation, increasing pressure on rising bond yields everywhere. JP Morgan also said that the current price of the yuan is 2.8 standard deviations above the 5-year average, making it the most overvalued of the 32 major currencies. The logic behind its view is that because China exports a wide range of products, if the yuan is overvalued, the rest of the world faces pressure to raise prices, leading to accelerating global inflation.
The yuan’s mid-price, reflecting the official will, opened 130 pips higher on Tuesday to 6.5103, a nearly one-month high, driving the onshore yuan higher to close at 6.4953 to the dollar; the offshore yuan was as high as 6.4884. Some traders said the yuan is expected to consolidate near 6.5 in the short term due to better-than-expected U.S. economic growth and a combination of dividend payments by Chinese companies to buy foreign currency. Commerzbank also believes that the possibility of an early interest rate hike by the U.S. Federal Reserve cannot be completely ruled out, and that the dollar will then be on the rise again, stifling the yuan’s rise.
Despite this, UBS chief China economist Wang Tao said that China’s current account surplus has undoubtedly narrowed compared to last year, which may make the interest rate differential between the U.S. and China continue to narrow, thus reducing the attractiveness of RMB assets, but it is believed that China will further open up its financial markets, and the interest rate differential between domestic and foreign is expected to remain considerable, coupled with the strong momentum of China’s economic recovery, which will continue to attract more foreign capital inflows, which is favorable to the RMB trend.
Recent Comments