Yuan to remain pressured by trade spat with US

Chinese currency’s fluctuations still within proper range: economist

China’s yuan is not likely to reverse June’s losses against the US dollar even in a year from now, according to a Reuters poll of foreign exchange strategists.

The currency has been volatile in the run-up to the US levying tariffs on Chinese goods. It had its worst month on record in June, losing about 3.3 percent of its value against the greenback, and the slide continued into July.

At the start of last week, the yuan fell as far as 6.72 per dollar, weaker than the forecast of 6.60 in the last monthly Reuters poll.

“Risks for a softer yuan have increased recently given the rising threat of larger tariffs being imposed by the US on China,” said Edoardo Campanella of UniCredit.

Despite recent fluctuations, the yuan exchange rate is still within a proper range in line with China’s exchange rate policy, a J.P. Morgan economist said.

“When measured against a basket of currencies, the yuan has been fluctuating within a range of about 3 percent since the beginning of this year, which does not deviate from a market-based, managed floating exchange rate system,” said Zhu Haibin, J.P. Morgan’s chief China economist.

The central parity rate of the Chinese currency has recently been on a downward trend, with the rate weakening 156 basis points to 6.6336 against the US dollar on Friday, according to the China Foreign Exchange Trade System.

“It is unlikely that China’s central bank will let the yuan depreciate notably against the dollar in support of exports, as some institutions assumed, because such a move will add pressure to capital outflow,” Zhu noted.

“The exchange rate of the yuan will remain basically stable at a reasonable and balanced level,” Yi Gang, governor of the People’s Bank of China, the country’s central bank, said Tuesday.

“The effectiveness of the system has been proved by years of practice, and we will continue to abide by it.”

Following Yi’s remarks, the yuan rebounded on Tuesday. It continued to ride the updraft on Wednesday but struggled on Thursday.

At year-end, the yuan will have strengthened to 6.57 and then will grow stronger to 6.50 in a year’s time, the poll of over 60 strategists taken last week showed.

Those median forecasts were weaker than in a June poll and the most pessimistic 12-month forecast moved from 6.80 to 7.20 per dollar.

Zhu said that the central bank should continue to guide two-way fluctuations of the yuan and take gradual steps in further exchange rate reforms.