He The Chinese yuan is one of these Asian currencies who benefited from the adjustment of strategies of to trade with the Japanese yen and expectations of a U.S. interest rate cut. The Chinese currency gained against the US Dollar over the past two months to fall to 7.08 yuan at the exchange rate. Thus, the yuan is trading at a 2024 high and leads to dollar to its lowest level in May 2023. However, few experts expect the Asian giant’s currency to be able to maintain this momentum in the short term in a sustainable manner.
The Bank of Japan is in the midst of a tight monetary policy adjustment. This is narrowing the gap between U.S. and Japanese benchmark currency prices. As a result, many investors have stopped borrowing in yen and invested in other markets with another currency (to trade) and closed these operations. Early last month, this triggered chaos in the debt, equity and currency markets. The side effect was that other Asian currencies, such as the renminbi (the popular name for the yuan in China), They came out favored against the dollar until you save the current prices.
“As the Federal Reserve becomes more conciliatory performance, this should be positive for emerging market economies and, in particular, for China and the yuan,” commented James Cook, investment director for emerging markets at Federated Hermes Limited. This outlook allows the yuan to recover over the course of the year and increase by 0.35% against the dollar, however, from now on. the progress of the Chinese currency in front dollar will be more sustained over time.
The market consensus that reflects Bloomberg expects the exchange rate between the two currencies to be at 7.18 in the last third of 2024. In other words, the market expects the renminbi to retreat from its last rally. before regaining its renewed strengthThe experts’ average puts the dollar at 7.10 yuan in 2025 and at 6.95 for the following year, which would imply a drop of more than 2% for the American currency compared to current prices.
Traders view the Chinese yuan as a cheap source of funding for their investment strategies. to trade. But concerns about China’s weak economy are pushing investors to opt for other currencies for these trades, such as the Thai baht or the Indonesian rupiah, as Sophie Altermatt of Julius Baer points out. “We think the recent rally has been too fast and I went too far. We see a potential setback. [del yuan] also because the markets are currently pricing in too many rate cuts in the United States,” the expert commented.
The International Monetary Fund predicts that China’s GDP will grow 5% this year, compared with 5.2% in 2023. The average of analyst firms downgrades China’s GDP growth to 5.2% in 2023. Asian giant’s economy at 4.8% in 2024 and in the following years, growth would continue to decline, according to the consensus gathered BloombergAdded to this is the role of the People’s Bank of China, which at its last meeting decided to lower its key rates by 10 basis points to 1.7%. In other words, it has given up supporting the yuan on the foreign exchange market to stimulate the recovery of its activity.
China’s weakness and associated deflationary forces, that it would export to other emerging economies, as J. Safran Sarasin Sustainable AM points out, ends up conditioning the rest of the currencies of developing countries. “Weary sentiment and concerns about China are weighing on Asian markets as a whole,” said Jen Cheung, currency strategist at Mizuho Bank.
