Yuan powers ahead after hitting 7-month high

Both HSBC and Morgan Stanley raise their yuan forecasts to 6.9 to the US dollar by year-end

PUBLISHED : Tuesday, 06 June, 2017, 12:14pm
UPDATED : Tuesday, 06 June, 2017, 5:44pm

The yuan powered further ahead against the US dollar on Tuesday, after hitting its strongest level in seven months the previous session.

And analysts still predict the Chinese currency to rise further in the near term, as the Beijing authorities try to moderate one-way yuan depreciation expectations in the market.

In the spot market in Shanghai, the US dollar traded at 6.7972 per yuan as of 5.40pm, weaker by 0.1 per cent from 6.804 late Monday.

In the offshore yuan market in Hong Kong, the US currency bought 6.7689 per yuan, down 0.2 per cent from 6.7817 late Monday.

Earlier in the day, the People’s Bank of China (PBOC) raised the yuan’s daily fixing rate to 6.7934 per US dollar, stronger by 1 basis point from the previous day’s rate.

Market participants consider the PBOC will follow suit if the US Federal Reserve raises its interest rates as expected this month
Ken Cheung Kin Tai, currency strategist, Mizuho Bank

On Monday, the PBOC set the yuan’s daily fixing rate firmer below the 6.8 level for the first time since November. It sparked a rally in the onshore yuan, which also jumped on Monday to the highest level in seven months.

“Currently, market participants consider the PBOC will follow suit if the US Federal Reserve raises its interest rates as expected this month,” said Ken Cheung Kin Tai, a currency strategist for Mizuho Bank.

“We believe the PBOC will maintain its strong RMB (renminbi) bias to maintain its upside momentum before the launch of Bond Connect, probably due on 1st July.”

The Bond Connect is a new initiative planned by the Chinese government to allow international and mainland investors direct access to each other’s bond markets.

Over the past few weeks, the yuan has strengthened sharply against the US dollar, prompting many analysts to revise their forecasts of its exchange rates.

HSBC has changed its USD/RMB forecast to 6.9 by year-end 2017, compared with 7.1 previously. Morgan Stanley also expects the currency to reach 6.9 by the end of the year, versus a previous estimate of 7.1.

“The recent policy-induced decline in USD-RMB suggests Chinese authorities have a strong desire to expunge one-way RMB depreciation expectations lingering among Chinese residents,” said Paul Mackel and Ju Wang, analysts for HSBC, in a recent research note.

He anticipates the yuan to strengthen further against the greenback in the near term, to 6.7, before rebounding after the Chinese leadership transition in the autumn, to end the year at 6.9.