US dollar-yuan exchange rate: China sees currency rise as ‘relatively moderate’ despite concerns

The yuan has gained around 7 per cent against the US dollar in the past six months amid escalating tensions between Beijing and Washington

Concerns have been raised among analysts over the speed of the appreciation of the yuan

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The yuan has gained around 7 per cent against the US dollar in the past six months, stoking debate over whether authorities should intervene to slow the rally, although officially, the People’s Bank of China (PBOC) has stopped directly intervening in the exchange rate, instead leaving it to the market. Photo: EPA-EFE

Published: 6:01pm, 23 Oct 2020Updated: 10:54pm, 23 Oct 2020

The rise of China’s yuan against the US dollar has been relatively moderate and it will still fluctuate around a reasonably balanced level, China’s foreign exchange regulator said Friday, signalling Beijing’s tolerance for the curreny’s recent rise amid escalating trade tensions with Washington.

The yuan has gained around 7 per cent against the US dollar in the past six months, stoking debate over whether authorities should intervene to slow the rally.

Officially, the People’s Bank of China (PBOC) has stopped directly intervening in the exchange rate, instead leaving the market to decide the currency trend, but it still manages the exchange rate by setting the midpoint for the yuan’s allowable trading range each day.

“Overall, the appreciation of the yuan is relatively moderate. Since the beginning of this year, the yuan has appreciated by 4.5 per cent against the US dollar, the US dollar index has fallen by 4.3 per cent, the euro has appreciated by 5.9 per cent against the US dollar, and the Japanese yen has appreciated by 4.1 per cent against the US dollar. In comparison, the performance of the yuan is basically in line with major currencies,” said Wang Chunying, a spokeswoman for the State Administration of Foreign Exchange (SAFE).

“Under the combined effects of internal and external factors, the yuan exchange rate is expected to continue to maintain two-way volatility and basic stability at a reasonable and balanced level in the future.”

The PBOC, China’s central bank, set the midpoint of the daily trading range against the US dollar at 6.6703 on Friday, lower than Thursday’s rate of 6.6556, which was the strongest guidance rate since July 2018.

The higher exchange rate figure means it takes more yuan to buy one dollar, signalling a depreciation of the Chinese currency.

There are concerns among analysts over the speed of the appreciation of the yuan, as Beijing has begun to tighten credit conditions, especially in the real estate sector, a measure that could slow down overall growth.

Foreign interest to invest in China’s economy and financial markets because of the strength of the Chinese economic rebound has been one reason for the rise in the yuan exchange rate.