Chinese yuan could climb to 6.65 to the dollar in Q3: analysts

A staff member counts banknotes at a bank in Qionghai, south China’s Hainan Province. (Photo: Xinhua)

After falling sharply last month, the Chinese yuan rebounded nearly 1,000 basis points to 6.6740 on Friday. The currency’s widened two-way fluctuations are further impacting Chinese exports which have already been under pressure due to the resurgence of COVID-19 in cities like Shanghai.

However, experts said there is no basis for a long-term depreciation or appreciation of the yuan, which will return to a reasonable level as economic and social activities resume amid an easing of the situation. pandemic.

Between April 20 and May 16, the Chinese yuan fell 6.2% against the US dollar to around 6.80 from 6.38, a steep drop that has been rare in the Chinese forex market.

Zhang Jiying, an umbrella exporter in Yiwu, east China’s Zhejiang province, told the Global Times on Saturday that overseas buyers who pay in dollars tend to place more orders when the Chinese yuan depreciates.

“However, unlike previous years, it seems that our overseas customers are in no rush to receive products this year, with about 20 customer orders still backlogged in our warehouse,” Zhang said. She said her clients come mainly from Russia, Spain, Italy and France, and their business has been affected by the pandemic and international uncertainties like the Russian-Ukrainian conflict.

An unnamed semiconductor businessman told the Global Times that some of the company’s exports made about a month ago did indeed generate more profit with the current exchange rate, but that doesn’t couldn’t make up for losses from last year, when the currency jumped to a three-year high against the dollar.

China strives to keep the yuan’s exchange rate mostly stable, as a stronger yuan makes Chinese goods relatively more expensive and less competitive in the international market, while a weaker yuan can lead to flight from domestic assets. outwards.

In the first four months of 2022, China’s trade stood at $1.98 trillion, up 10.1 percent year-on-year. During the period, the country’s exports jumped 12.5 percent year-on-year to $1.09 trillion, while imports rose 7.1 percent to $881.4 billion, data showed. General Customs Administration.

Analysts from China International Capital Corp (CICC) said in a note posted on the company’s WeChat account that the yuan exchange rate could strengthen to 6.65 to the dollar by the end of the second and third quarters. , the yuan exchange rate showing two-way fluctuations in domestic and external developments, but the fluctuation range narrowed permanently.

The exchange rate of the yuan against the dollar is expected to remain at 6.7 during the first quarter of 2023, as the dollar may strengthen due to the negative impact of interest rate hikes by the United States Federal Reserve on the other economies, according to CICC analysts. However, the exchange rate of the yuan against a basket of currencies will remain stable, as it remains supported by the good fundamentals of the economy.

The recent depreciation of the yuan was a short-term adjustment that will not change the general characteristics of the yuan’s exchange rate, characterized by two-way fluctuations and general stability at a reasonable and balanced level, said Wang Chunying, door. -spokesman and deputy head of the State Foreign Exchange Administration, Xinhua News Agency said in a recent interview.

“For a mega-economy like China, the long-term trend of the exchange rate is mainly determined by domestic fundamentals,” Wang said, noting that despite the recent depreciation against the U.S. dollar, the yuan remained relatively stable against other major currencies.

The share of the Chinese yuan in the IMF’s special drawing rights basket has risen from 10.92% to 12.28%, the People’s Bank of China (PBC), the country’s central bank, announced on Sunday.

The PBC said in its monetary policy report for the first quarter of 2022 that it was sticking to a managed floating exchange rate system based on market supply and demand, and adjusted with reference to a basket currencies. In addition, the central bank will guide expectations to keep the yuan exchange rate essentially stable at a reasonable and balanced level.

On Friday, the central bank cut the five-year loan prime rate (LPR) by 15 basis points to 4.45% in May, its biggest drop in the mortgage benchmark for longer-term loans.

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