During Tuesday’s intraday trading, the offshore yuan experienced a 0.35 percent dip, reaching a rate of 7.1095 per dollar, while the onshore renminbi also weakened to 7.0995. Adding to the pressure, the onshore RMB briefly fell below 7.1 on Wednesday, marking the first occurrence since November 30.
Since breaking the psychological threshold of 7 yuan per dollar on May 17, China’s currency has depreciated by approximately 1.4 percent against the US dollar up to the present.
On Wednesday, the China Foreign Exchange Trade System quoted the RMB’s central parity rate as 7.0821, which had already been reduced by 243 basis points from the previous trading day’s quote of 7.0818.
Feng Lin, a senior analyst at Golden Credit Rating, clarified that previous market expectations of the US Federal Reserve pausing interest rate hikes in June and potentially lowering the benchmark interest rate have recently undergone changes. The potential increase in the US debt ceiling has raised demand for risk hedging, which has kept the US dollar index at a higher level.
In comparison, Feng explained that the depreciation of the Chinese yuan against the US dollar is part of regular market fluctuations, considering these circumstances.
Since May 18, the US dollar has experienced a gain of 1.37 percent, leading to depreciation in other major currencies against the greenback. The euro has fallen by 1.22 percent, the Japanese yen has shed 2.01 percent, and the British pound has slid 1.1 percent.
Experts predict that the Chinese renminbi (RMB) will moderately appreciate against the US dollar by the end of this year, reaching approximately 6.8 compared to its value of 6.95 at the end of 2022. JP Morgan China’s chief economist, Zhu Haibin, also foresees the USD/CNY exchange rate stabilizing between 6.8 and 6.9 by the end of 2023.
Unlike three years ago when the Chinese yuan fell below the 7-per-dollar level, the market and China’s central bank are now less sensitive to such fluctuations. Governor Yi Gang of the People’s Bank of China emphasized in a March news conference that the RMB’s value dropping below this threshold is no longer a psychological barrier due to the stability of China’s economy and market expectations.
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The recent depreciation of the yuan can be primarily attributed to weaker-than-expected economic data in April, leading to concerns about China’s economic recovery pace. This has affected the performance of the Chinese yuan. Additionally, the slowdown in overseas markets and diminished demand for Chinese exports, observed since the second half of last year, will result in a smaller trade surplus, consequently impacting the RMB’s value.
While economic growth is expected to decline in Europe and the US this year, China’s outlook remains more positive. The difference in economic growth between these major economies will provide significant support for the RMB. These factors will play a crucial role in determining the yuan’s value this year. Despite some short-term volatility, Zhu Haibin believes that the RMB will generally remain stable, although fluctuations may still occur throughout the year.