Market Overview

28 May 2021

Chinese Yuan Changing Suit

The Chinese Yuan is traditionally considered as an instrument authorities use to gain advantages in international trade by constantly devaluing it. For years the United States accused China for its currency market manipulations. It seems to be startling that the Yuan has been strengthening for almost a year, from May 2020 until now. The USDCNH declined to 6.36, bringing the Chinese currency to three year highs.

It seems like the People’s Bank of China went against its own convictions by allowing the Yuan to constantly grow stronger. However, this rather new outfit might be perfectly tailored to tackle the pandemic consequences. Amidst plunging international trade and contraction of the global economy, internal demand seems to be a key lifeline on the recovery path. China may seem much less affected by the pandemic as it lifted lockdowns earlier than any other country in the world. While other economies were out of order suffering from lockdowns, China switched its priorities to internal demand. Beijing believes nursing internal production and sales might be more effective in global competition. In this case, advantages of the weak Yuan do not seem to suit new economic policy. Moreover, a stronger Yuan lowers import prices of raw materials, curbing rising prices of imports.

The strengthening of the Yuan is also in line with the “fair” competition with the United States. Rising Yuan liquidity and comfortability present it like a decent alternative to the Greenback. Rising national currency attract could make more foreign investments favour China as an alternative global power.

The strengthening of the Yuan is also in line with a weakening U.S. Dollar. So, the Yuan may continue to gain to a new target at 6.24. On the other hand, any upside movement of the USDCNH is limited by a strong resistance at 6.58.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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