The yuan has been appreciating relative to the dollar for some time now. Amidst renewed concerns about U.S. debt, many analysts expect that the yuan will continue to rise. From the Wall Street Journal:
China’s yuan rose to yet another high against the dollar late Friday on expectations the greenback may extend its losses against major rivals amid concerns over U.S. debt.
On the over-the-counter market, the dollar was at CNY6.5067 at 0830 GMT, down from 6.5205 late Thursday. It traded between CNY6.5067, the lowest level under the current system, and CNY6.5160.
“Compared to its recent plunge in global markets, the dollar’s decline against the yuan is still mild,” so there’s more room for China to let its currency rise in coming weeks, said a Shanghai-based trader at a local bank.
China’s central bank, the People’s Bank of China, set the dollar-yuan central parity rate at 6.5156, down from Thursday’s 6.5205, after a range of currencies, including the Australian dollar and Canadian dollar, notched strong gains against the U.S. unit overnight.
Though China seems to be accelerating the yuan’s rise against the dollar, the Chinese currency remains undervalued in trade-weighted terms, said Capital Economics.
“We now expect the renminbi to rise at an annualized pace of 8% against the dollar over the next six months,” the London-based consultancy said, referring to the official name of China’s currency. It expects the dollar to finish the year at CNY6.20.
Besides international factors, other reasons precipitating the yuan’s appreciation are China’s ever-increasing inflation rates. From Bloomberg News:
Yuan forwards traded at the biggest premium to the spot rate in more than five months, reflecting speculation the central bank will allow quicker currency gains to help tame inflation. Four interest-rate increases and higher bank reserve requirements have failed so far to curb prices, with the consumer-price index rising 5.4 percent in March.
“The investors are still expecting to see more tightening measures as inflation remains at a high level,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Faster yuan appreciation would become part of the government’s efforts to curb inflation after the central bank gets close to a ceiling for reserve requirement ratios and interest-rate increases.”
