China’s RMB Yuan Stabilizes Against USD
Chinese currency has been stable against the USD for a week, suggesting the market has calmed down after last week’s jolting depreciation.
Over the last week, the spot USD/CNY exchange rate has hovered at around 6.39, three percent higher than before the central bank’s reforms on the yuan’s central parity rate last Tuesday, which devalued the RMB Yuan by 2%.
The move sparked a sell-off as traders worried about whether the central bank would allow the yuan to fall even further.
In response to worries, the bank signaled a 3% decline would put the currency at a reasonable level and denied claims that the depreciation was to counter a slump in exports. The market steadied in the last week.
Stabilizing the currency will be the main theme, the central bank would keep the RMB Yuan stable at its current mark to soothe market expectations.
With the central parity rate reform helping the yuan better reflect market consensus and the 3% depreciation easing downturn pressure, the stabilized Yuan may help investors regain their interest in China-related products.
Chinese RMB Yuan remains strong at a time when the euro, yen and many emerging economy currencies have registered huge declines Vs the USD.
According to the Bank for International Settlements, since Y 2014 the RMB Yuan has appreciated 10.28% in the nominal effective exchange rate and 9.54% in the real effective exchange rate, so even 3% down, the RMB Yuan is more attractive than many other Asian currencies.
Expect the USD/CNY exchange to hit 6.5 by the end of Y 2015, and fall to 6.35 by the end of Y 2016, as the Buck will not continue to remain strong.
The People’s Bank of China (PBOC) said that there are no grounds for persistent and substantial depreciation of the yuan in the long run while vowing to step in to prevent excessive swings. “Chinese yuan is still a strong currency,” said Zhang Xiaohui, PBOC assistant governor.
She said China’s huge current account surplus, robust economic growth and abundant foreign exchange reserves would maintain the yuan’s strength in the long term.
Analysts also believe that as China is promoting international use of the RMB Yuan, the regulator will keep it strong for global appeal.
Moody’s said the shift in the exchange rate management is a credit positive step as it supports the authorities’ objectives of capital account liberalization and increased currency flexibility.
The rating agency believes significant depreciation of the RMB Yuan is unlikely, given China’s strong fundamentals.
Have a terrific weekend.
HeffX-LTN
Paul Ebeling
The post China’s RMB Yuan Stabilizes Against USD appeared first on Live Trading News.