The yuan might have lost a little more than 2 per cent of its value against the US dollar over the last year, but it pales beside the 20 per cent trade weighted appreciation it has seen since the currency's exchange regime was made more flexible in 2010. And it is that move which analysts at ABN Amro believe is likely to trigger a further widening of the yuan's daily trading band to 3 per cent each way, from the current 2 per cent, in a bid to steer the currency lower. Why? Because the strong yuan is exerting similarly strong deflationary pressure on a quickly cooling economy in which industrial profits are growing at the slowest pace since 2012. Inflation is now running fully 2.7 percentage points below the central bank's 3.5 per cent target rate. Getting back to target while supporting the industrial sector would be a golden combination.
