I posted earlier on the work conference coming up:
There will be discussion on the level of the currency, which has been on a strengthening trend. The strength is not wholly unwelcome, Chinese firms have borrowed nearly 1,000bn USD of foreign currency (600bn for less than a year) so some strength for the local currency will assist with both servicing these loans and reducing debt levels. Higher yuan has been supporting domestic consumption also.
However, on the flip side, Chinese exports do become more expensive in global terms as the currency rises.
6.5 is viewed as a key level for Chinese authorities and if measures need to be taken they are likely to centre on:
- widening the daily permitted trading band to increase volatility perception
- encouraging capital outflows (or at least some further loosening of restrictions) and discouraging inflows
I suspect 6.5, when we get there, will be merely a speed bump for a higher yuan though. Citi share this view, looking for a further (up to) 10% rise for the currency by the end of 2021.
