The exchange rate of Chinese yuan with the world’s major currencies will continue to hinge on market supply and demand, and current changes within international financial markets indicates that two-way yuan rate fluctuations will become the new norm, a senior Chinese official said on Sunday.
Since the beginning of this year, the yuan’s exchange rate has wobbled, while remaining basically stable at a reasonable and balanced level, said Liu Guoqiang, deputy governor of the People’s Bank of China (PBC), the central bank.
China’s foreign exchange dynamics are determined by the market, and the yuan’s exchange rate is expected to remain stable in the coming months, said Liu.
Chinese yuan has strengthened against the US dollar since April mainly thanks to China’s strong economic recovery from the COVID-19 pandemic and robust export trend, after the Chinese currency weakened to a four-month low against the US dollar at the end of March.
UBS sees the Chinese yuan strengthen to 6.35 against the US greenback.
“As the yuan’s exchange rate appreciation and depreciation factors both exist in 2021, it is expected that the exchange rate will not have a singular trend of appreciation or depreciation,” said Tang Jianwei, a senior macroeconomic analyst at the Bank of Communications.
Tang forecast that the yuan’s exchange rates will wobble within the range of 6.3 to 6.7, centering around 6.4 to 6.5. The 2021 exchange rate appreciation is expected to be significantly smaller than that of in 2020.
“The PBC has improved a managed floating exchange rate system based on market supply and demand, adjusted with reference to a basket of currencies. This system is suitable for China’s exchange rate system,” said Liu.
The PBC will pay attention to the guidance of investor expectations, give full play to the role of exchange rate in adjusting China’s macro economy. It is important to maintain the basic stability of the exchange rate at a reasonable and balanced level, he added.
The central parity rate of the Chinese currency strengthened 164 pips to 6.4300 against the US dollar on Friday, according to the China Foreign Exchange Trade System.
In China’s spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day. The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.