On Wednesday, the Chinese yuan hit its highest level in 16 months against the US dollar. The development follows Beijing’s unveiling of a host of stimulus measures on Tuesday to boost the nation’s slowing economy.
The Governor of the People’s Bank of China also announced that the central bank will cut the amount of cash banks need to have on hand and cut the 7-day repo rate by 0.2 percentage points.
On Wednesday, the Chinese offshore yuan briefly surged to 6.9946 per dollar, marking its highest reading since May 2023. Since its peak, the yuan has cooled to 7.0319, holding its most significant levels since last May.
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China’s Grip On Its Currency
Unlike other currencies, like the Japanese yen and the US dollar, the yuan is strictly controlled by China. Its trading range is restricted to 2% above or below the daily midpoint rate.
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On the other hand, the offshore yuan is not as tightly controlled. Offshore yuan is the Chinese currency permitted to be traded in Hong Kong, London, Singapore, and New York.
Will China’s Yuan Continue To Gain On The US Dollar?
According to Edmund Goh, head of China fixed income at Abrdn, “We think the weak growth and low inflation environment in China should put some pressure on RMB (Chinese Yuan) going forward.“
Ben Emons, founder of Fed Watch Advisors, believes a strengthening yuan will add deflationary pressure to China’s exports.
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According to Zerlina Zeng, head of Asia Credit Strategy at CreditSights, the offshore yuan may trade below 7.0 over the next three months due to policymakers’ pro-growth stance.