Renminbi hits a six-year-low
Room for depreciation of the yuan is limited: experts
The yuan weakened against the US dollar on Friday, moving beyond 6.8 for the first time in more than six years, as the dollar recovered from the shock of Republican Donald Trump winning the US presidential election, and as market expectation of an upcoming hike in US interest rates heats up.
Although the yuan’s depreciation will persist in the short-term, mainly due to the influence of monetary policies Trump is likely to implement, such fluctuations will be within a controllable range, experts predict.
The central parity rate of the Chinese currency weakened 230 basis points to 6.8115 against the dollar on Friday, the lowest rate since September 2010, according to the China Foreign Exchange Trade System on Friday.
The onshore yuan was quoted at around 6.81 as of 11am on Friday, while offshore yuan traded in Hong Kong sat at about 6.83 against the US dollar, according to the Foreign Exchange Trade System.
“The US currency rebounded on Thursday, just a day after Donald Trump’s presidential win surprised the world and prompted the dollar’s steep fall earlier this week,” Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Friday, noting that the market has absorbed the panic over Trump’s victory.
The US dollar index, which tracks the greenback against a basket of six major currencies, was trading 0.12 percent higher on Thursday.
The expectations of an interest rate hike by the US central bank, which is projected to take place in December and strengthen the dollar, is another factor behind the yuan’s downward pressure, Xu Gao, chief economist at China Everbright Securities Co, told the Global Times on Friday.
In the short-term, the yuan’s fixed rate could fall further still through the end of 2017, and probably plunge to 7 against the US dollar, experts forecast.
“It is likely that the Republican will inject massive fiscal stimulus next year, where we can see a rising interest rate, a strengthening dollar, and therefore a weaker yuan,” Zhou predicted.
The president-elect has also proposed a 45 percent tariff on goods imported from China.
“Although there might be a big difference between what he said during the presidential campaign and the government policy he implements, the words still send signals of possible trade protectionism in the near future,” Xu said.
The domestic foreign trade sector might suffer a blow as a result, driving investors to sell Chinese yuan and purchase US dollar, Zhou said, noting that such a practice is speculative and will not last long.
In the long-term, considering China’s favorable balance of trade, the room for depreciation of the yuan is limited, experts note.
In October, China’s trade surplus expanded to $49.1 billion, up 16.9 percent from September.
“Despite the sluggish global demand, the figure shows that China’s export industry is still competitive and robust, with the exports of high-tech products catching up,” Zhou said.