Yuan short sellers working on the assumption that monetary policy easing is around the corner may need a change of plan as Beijing could once again prove those bearish bets are misplaced. When money mangers started to leave yuan-denominated assets because of possible depreciation risks, they might have underestimated Beijing’s determination to globalise its currency. To achieve its grand plan, Beijing is keen to keep its currency stable even if that means the yuan will continue to strengthen against almost all the other currencies as they weaken against a strong dollar, and hence dent Chinese export competitiveness. “The strong focus on internationalising the CNY, opening up China’s capital account, coupled with the pledge from Premier Li, have helped to stabilise and rebuild confidence in the CNY,” said Koon How Heng, senior currency strategist at Credit Suisse Private Banking and Wealth Management. “This ring-fences the CNY from the ongoing efforts by the PBoC (People’s Bank of China) to ease monetary policy and stabilise China’s growth outlook,” said Heng, who upgraded the outlook on the yuan against the dollar from “negative” to “neutral”. The yuan has been hovering just above 6.20 since mid-April when Premier Li Keqiang told the Financial Times that the nation’s monetary policy has not been designed to weaken the currency in order to boost exports. The PBoC has also kept the official midpoint rate of the currency exchange band relatively stable around 6.11 to 6.12 in recent weeks. We no longer see risk of gradual weakness in the CNY and expect range trading around 6.20 against the USD, going forward Koon How Heng, analyst, Credit Suisse The strong state backing for the currency is believed to be a matter of commitment even if it comes at the cost of exports. There are plenty of reasons why Beijing would want a stable currency as one of its policy priorities, at least for now. A stable currency will boost the incentive for foreign trading and investment entities to choose yuan in their transactions, a key indicator in the technical assessment by the International Monetary Fund in its review of the Special Drawing Right basket – an elite club of currencies Beijing wants the yuan to join this year. In addition, the nation is launching the first phase of a globally centralised payment system by year-end, the so-called China International Payment System (CIPS), which will need a stable currency to encourage offshore trading partners to boost trading volumes. More importantly, capital outflow is something Beijing does not want to see. “The fear of large destabilising capital flows out of China has not materialised,” said Heng. According to Credit Suisse, the foreign exchange flows by mainland commercial banks suggest that capital outflows from the country have eased in recent months. Credit Suisse expects yuan to trade around 6.20 in the coming months, up from the previous forecast of 6.29 in three months and 6.33 in 12 months, which represent 1.3 per cent and 1.9 per cent depreciation from its current level. “In other words, we no longer see risk of gradual weakness in the CNY and expect range trading around 6.20 against the USD, going forward,” said Heng.