The Chinese yuan might depreciate by more than 2 percent against the US dollar within six months, following the US’ tightened monetary policy and steady economic recovery, Standard Chartered Bank said yesterday.
The Chinese yuan showed a depreciation against the US dollar last year, the first time ever since its revaluation in 2005.
“The yuan might continue to show a modest depreciation versus the greenback over the next six months, in line with the current trend of its forward rate,” Standard Chartered Bank global head of yuan trading Charles Feng (馮思果) told a media briefing in Hong Kong.
Feng said the yuan would likely drop to 6.28 against the US dollar in the next six months, followed by a rebound to 6.12 versus the greenback by the end of this year on the back of strong internal demand.
In the long term, the yuan could continue its pace of appreciation, as China’s position as the second-largest economy in the world might lead investors to allocate more yuan-denominated assets, as well as major global central banks’ move to raise their yuan-based foreign exchange reserves, Feng added.
The offshore yuan climbed for a fourth day yesterday after Chinese Premier Li Keqiang (李克強) on Wednesday said at the World Economic Forum in Davos, Switzerland, that China will avoid a hard landing following last year’s slowest growth in 24 years.
People’s Bank of China Governor Zhou Xiaochuan (周小川) said at the same conference that the central bank is confident that the Chinese economy is stable.
“Li’s remarks indicate China’s confidence in its economic outlook, lending support to the yuan,” Bank of East Asia Ltd (東亞銀行) foreign-exchange analyst Kenix Lai (賴春梅) said.
The offshore yuan yesterday climbed 0.07 percent to 6.21 per US dollar as of 5pm in Hong Kong, taking its four-day gain to 0.39 percent. The onshore yuan advanced 0.03 percent to 6.21.
The central bank raised the reference rate by 0.03 percent to 6.12. The Shanghai spot rate was at a 1.4 percent discount to the daily fixing, within the 2 percent limit.
Feng said that as the yuan depreciation could discourage investors to hold the currency this year, there might be continuous net capital outflow from China, along with a higher trading volatility.
Against this backdrop, investors might have to adjust their currency hedge strategy, he said.
However, Beijing might further allow the yuan to move up or down 3 percent daily on either side, from the current 2 percent, and lower its intervention to the yuan market, which could be a healthy move for the currency’s development in the long run, he added.
Overall, the growth pace of the yuan market might slow this year, Feng said, adding that Standard Chartered currently set its growth projection of the currency’s daily transaction amount this year at 20 to 30 percent, compared with 50 to 60 percent recorded last year.
The daily transaction amount of yuan, including spot transaction and forward transaction, averaged US$30 billion last year, Standard Chartered’s data showed.
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