BEIJING • The relentless advance of the renminbi against the US dollar gives hope that it could reach levels last seen before its shock devaluation in 2015.
The rally of nearly 1% this week brought it closer to Wall Street’s most bullish calls and reminded the People’s Bank of China (PBOC) that authorities are watching the market closely. Strategists at Citic Securities, China’s largest brokerage firm, and Scotiabank expect the currency to strengthen to 6.2 against the dollar in onshore markets from the current 6.384.
As the Chinese economy rebounds from the Covid-19 pandemic and foreign funds accumulate in its stock and bond markets, the renminbi has jumped beyond critical levels that have been held over the past three years, attracting investors looking for an attractive yield in a world of low interest rates. .
So far, the central bank has refrained from taking action to slow the rise, although a statement released on Thursday cautioned against one-way bets and predictions.
“The central bank is trying to downplay the market’s excessive importance on the (renminbi) after two separate official PBOC speeches last week garnered a lot of attention,” said Mr. Tommy Xie, head of research on Greater China at OCBC Bank. Still, “the dollar’s structural weakness may continue to support (the renminbi) in the medium term,” allowing it to climb back to 6.25 by the end of the year, he said.
The latest PBOC statement suggests that policymakers are increasingly concerned about the increased focus on the strength of the renminbi. The forex market is in equilibrium and the rate could move one way or the other as many market elements and policies could affect it, the central bank said.
It cannot be used as a tool to boost exports or offset rising commodity costs, the bank said, adding that “businesses and financial institutions should adjust to a two-way fluctuation in the exchange rate. “.
Bloomberg Economics Chief Economist for Asia Chang Shu said, “Despite the neutral tone, the timing of the statement indicates that the central bank is trying to break the appreciation psyche.”
The PBOC has been neutral in setting its daily benchmark rate this week, following market movements rather than using it to limit appreciation. In the past, authorities have used fixing to signal when the currency was seen as moving too quickly in one direction.
Citic Fixed Income Research Director Ming Ming said, “With strong exports from China, falling real rates in the United States and an accommodative stance by the Federal Reserve, we believe that the (renminbi) still has some margin of appreciation.
Chinese exports jumped more than 32% last month in dollar terms, beating expectations as global stimulus measures fueled demand. The rest of the economy, from industrial production to retail sales, also posted strong growth.
The rally made the renminbi the best performing currency in Asia this year.
“Even if the Fed has started talking about tapering or starting to shrink, its balance sheet will continue to rise – the dollar will continue to weaken as markets get used to the idea,” said Gao Qi, strategist. in Scotiabank currency in Singapore. This will allow the renminbi to reach 6.2 by the end of the year, he said.
“An orderly appreciation of the (renminbi) is acceptable to the Chinese authorities, but one-sided speculation will continue to not be permitted by the PBOC as before.”
The target of 6.2 is also shared by other banks, including Westpac.
BBVA Hong Kong Chief Economist for Asia Xia Le said that while the renminbi could climb to 6.3 per dollar by the end of the year, the central bank will not allow that a “rapid rally continues indefinitely”.
“The trade tensions between China and the United States have not been resolved and this will hurt exports,” he said. “When supporting factors such as export strength weaken in the future, then China will see rapid capital outflows and rapid depreciation (of the renminbi).”