Yuan slide re­verses on buoy­ant GDP

China Daily (Canada) - - VIEWS - By WANG YAN­FEI wangyan­fei@ chi­nadaily.com.cn

The yuan strength­ened against the dol­lar on Wed­nes­day to its high­est level in 10 months, re­vers­ing its de­pre­ci­a­tion trend.

On Wed­nes­day, the pair closed at 6.68 ver­sus 6.70 on Tues­day. On Jan 2, the first trad­ing day of the year, it was at 6.94.

Bet­ter-than-ex­pected eco­nomic re­cov­ery and ef­forts to open up the do­mes­tic cap­i­tal mar­ket to for­eign in­vestors will prob­a­bly push the yuan fur­ther up against the dol­lar in the short term, ex­perts said.

Many in­sti­tu­tions have re­vised up­ward their pre­dic­tions for the yuan by the yearend. For in­stance, Mor­gan Stan­ley re­vised its end-2017 fore­cast for the yuan to 6.90 per dol­lar from the pre­vi­ous 7.10.

“Based on its re­cent per­for­mance, the yuan has made a switch from its pre­vi­ous de­pre­ci­a­tion path,” said Cheng Shi, chief econ­o­mist at ICBC In­ter­na­tional.

Cheng said more mar­ket­peo­ple are up­beat about the yuan now, lead­ing to grow­ing in­ter­est in hold­ing yuan­de­nom­i­nated as­sets.

This year, the yuan has gained against the dol­lar by more than 4 per­cent as of Wed­nes­day, a stark con­trast to around the 6.5-per­cent de­pre­ci­a­tion last year.

A weak dol­lar has helped push the yuan up amid un­cer­tainty over the Trump ad­min­is­tra­tion’s fis­cal agenda. This has caused a dol­lar sell-off, ac­cord­ing to Li Li­uyang, a forex an­a­lyst with China Mer­chants Se­cu­ri­ties.

Af­ter the first-half GDP growth — 6.9 per­cent — sprang a pleas­ant sur­prise, the mar­ket’s con­fi­dence in the Chi­nese cur­rency has been re­stored.

Gov­ern­ment ef­forts for a sta­ble bal­ance of pay­ments will likely ex­ert long-term pos­i­tive pres­sure on the cur­rency ex­change rate fluc­tu­a­tions, ac­cord­ing to Liu Li­gang, an econ­o­mist with Citibank.

The main­land-Hong Kong bond con­nect plat­form is ex­pected to at­tract around 3 to 5 tril­lion yuan ($441-735 bil­lion) in the next cou­ple of years, ac­cord­ing to Cheng of ICBC In­ter­na­tional.

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