China’s RMB Yuan May Halt 1-Sided Appreciation

Posted by: : Paul EbelingPosted on: February 23, 2014 China's RMB Yuan May Halt 1-Sided Appreciation

China’s RMB Yuan May Halt 1-Sided Appreciation

One-sided appreciation of the Chinese RMB Yuan Vs UDS might end if this week’s 4 day decline continues.

The value of the Yuan has fallen against the Buck for 4 days running, weakening 123 bpts in total. The Yuan dropped by more than 200 bbts YTD.

Lu Zhengwei, chief economist of the China’s Industrial Bank, said expectations for Yuan appreciation might be changed if the trend continues.

Yuan has risen to 6.1176 Vs the USD from 8.11 in July 2005 when China reformed the exchange rate mechanism. Appreciation quickened in Y 2013 and its value rose 3%, compared with 0.25% in Y 2012.

Concerned about economic slowdown, big banks have been buying foreign exchange, but Lu also attributes Yuan weakening to the global foreign exchange market where currencies of most emerging economies are depreciating, mostly as a result of the US Fed’s QE tapering.

“The recent large-scale depreciation of emerging economies’ currencies has widened exchange rate gaps between the Yuan and other currencies, leading to expectations of Yuan depreciation,” said Lu.

“In this sense, decline of the Yuan could have been anticipated,” Lu added.

The halting of appreciation expectations for the Yuan should come as good news to China’s exporters, said Lu Lei, head of the Guangdong University of Finance.

Lu suggested companies learn more about exchange rate hedging and reduce risk through financial products.

The impact on the other emerging market (EM) economies should be temporary, Lu said.

“In the long run, the fundamentals of the Chinese economy and the real purchase power of the Renminbi (Yuan) will be the decisive factors for the currency’s exchange rate,” he added.

Stay tuned…

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Paul Ebeling

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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.
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