2017.08.30 Experts say strengthening trend won’t last-fence post, fence, wire mesh
The yuan's appreciating trend continued on Wednesday, with the currency's central parity rate against the US dollar reaching a one-year high.
The yuan's reference rate against the US dollar reached 6.6102 on Wednesday, strengthening by 191 basis points compared with Tuesday.
So far in 2017, the yuan's reference rate has surged by about 4.9 percent in total.
On Wednesday, offshore yuan gained by 0.15 percent to 6.5984 as of press time, while onshore yuan also strengthened by 0.06 percent to 6.5899 by that time.
The yuan started to show a depreciating trend in mid-2015, when the central government launched a reform of the central parity exchange rate mechanism, but the currency has firmed up this year.
Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, said that the yuan's appreciation has been a bit "too strong" in 2017.
"This trend won't last very long," he noted.
Mixed factors
The US Dollar Index, which measures the value of the dollar relative to other currencies, was at 92.7 as of press time on Wednesday, compared with 102.18 on January 2, the first trading day in 2017.
"The US dollar's deprecation might have had something to do with people's disappointment with President Donald Trump's policies, as well as the appreciating trend in other currencies like the Japanese yen and the euro," Zhou noted.
According to Zhou, the government's tighter controls on capital outflows, particularly by big domestic companies, have also contributed to the yuan's appreciation.
On August 18, the central government placed restrictions on overseas investment in businesses such as real estate, hotels and sports clubs.
'Won't last long'
But analysts told the Global Times on Wednesday that it won't be long before the yuan starts to depreciate again.
"The yuan has appreciated a lot this year. I think the market will initiate self-adjustment soon, maybe along with a certain level of government intervention," Zhou noted.
According to Xi, the factors that have prompted the recent rise in the yuan are not strong enough for it to be a sustained rise.
"The US dollar has dropped to a certain extent and won't drop much further, and the domestic economy has just rebounded but not thoroughly recovered," he said.
"The space for the yuan's further appreciation is limited. It is unlikely to strengthen beyond 6.5 by the end of this year," Xi noted.
Xie Yaxuan, a senior economist with China Merchants Securities, also said in a note sent to the Global Times that the yuan's appreciation won't last till the end of this year as the US dollar might rebound soon.
According to Zhou, the yuan's continuous appreciation could harm the domestic economy, as appreciation leads to a slump in exports.
"This is especially so as the drag on the domestic economy from the slowdown in the real estate sector has already started to emerge," he noted.
China's exports surged by 8.3 percent year-on-year to $1.24 trillion in the first seven months in 2017, customs data showed on August 8. But Zhou said that the influence of the yuan's appreciation on exports will manifest itself later.
Xi said that strong fluctuations in the yuan, whether appreciation or depreciation, are not good for the currency's internalization.
"The government is still promoting the yuan's internationalization but with a much milder rate [because of the yuan's fast appreciation]," he noted.
Xi added that a stable rate is needed for the yuan to become a more global currency.
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