Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

China Allows Stronger Yuan as President Xi Turns Focus to Home

ForexSep 03, 2020 04:18PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. China Allows Stronger Yuan as President Xi Turns Focus to Home

(Bloomberg) --

Beijing is allowing faster gains in the yuan as it seeks to cheapen imports and bolster weak consumer spending.

That’s one theory touted by DBS Bank Ltd. and Mizuho Bank Ltd., who say a stronger yuan is ideal for Beijing as it aims to boost imports and encourage people to spend more at a time when Chinese President Xi Jinping has pushed for a more self-reliant economy. That marks a shift from when Beijing used to fret about a strong yuan undermining the nation’s exports to the world.

China’s central bank has refrained from sending obvious signals with its daily fixings. That’s even as the yuan gained about 5% since May versus the dollar to its highest level in more than a year. The fixings -- - a tool the PBOC often uses to limit currency strength -- have generally been tracking the market higher as the dollar has weakened.

A stronger exchange rate also helps remove a flashpoint in relations with the U.S., with President Donald Trump having long accused China of keeping the yuan artificially weak. Domestic banks will be more inclined to hold a currency that isn’t depreciating, which in turn would help Beijing reduce the financial sector’s reliance on the greenback.

“Tolerance toward a stronger yuan when it is fundamentally driven is going to be high,” said Wang Ju, director and senior foreign-exchange strategist at HSBC Holdings Plc (LON:HSBA) in Hong Kong. “A stronger yuan would help China diversify away from the dollar and optimize its resource allocation.”

The currency’s rally since this year’s nadir in late May has made it the best performer in Asia, with the buying momentum still standing close to the strongest since January. The yuan’s large interest-rate premium over the yield on the dollar also helped to boost demand.

Such strength is already helping China, which was reported to be buying a record amount of American soybeans this year as lower prices help it boost purchases pledged under the trade deal. But still, the economy remains fragile -- the country’s imports contracted in all but one month since March, while retail sales came out worse than economists had expected for five months in a row.

“The stronger yuan could stimulate imports and further expand the domestic consumption market,” said Ken Cheung, chief Asia currency strategist at Mizuho. “China’s leaders will be less tempted to use depreciation to stimulate the economy, as the export sector plays a secondary role in growth now.”

But this doesn’t mean Beijing will let the yuan run wild. A key indicator of strength is the CFETS RMB Index, which tracks the yuan against 24 peers. It shows the yuan has appreciated about 2.2% against them since the start of August.

The central bank may set the fixing at weaker-than-expected levels if the gauge jumps rapidly to a point where the strength eats into exports, said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd.

But for now, the yuan has room to advance further said Ong, who sees demand for the greenback being reduced after the U.S. presidential election in November. “A stronger yuan is a better fit for China’s growth model,” he said, predicting the currency to hit 6.7 per dollar by year-end.

©2020 Bloomberg L.P.

China Allows Stronger Yuan as President Xi Turns Focus to Home
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email