MNI INTERVIEW: Yuan Could Rally To 6.5 But Volatility Ahead

The Chinese yuan could rally to 6.5 against the U.S. dollar in the second half of 2023 on capital inflows and a weaker U.S. dollar, though two-way volatility is likely early in the year as an economic recovery navigates rising Covid cases, a senior policy adviser told MNI.

“For the next six months, the yuan will trade with two-way volatility against the dollar and may weaken back to the 7 level. The yuan-dollar pair is expected to swing in a band of 6.8-7.4 over most of next year and it is likely to rebound to 6.5 in H2,” Zhang Ming, deputy director of the Institute of Finance & Banking at the Chinese Academy of Social Science, told MNI in an interview. (See MNI INTERVIEW: PBOC Rate Cuts Needed As Leverage Set To Rise)

Mirroring the experience of South Korea and China Taiwan, China’s economy is likely to suffer disruptions one or two quarters after the lifting of pandemic controls, with the yuan likely to come under pressure during that time, the economist predicted. However, the yuan was likely to see sustained strength after Q2 as the economy gained traction and the Federal Reserve paused its hiking campaign, he added.

Stronger growth will boost the performance of Chinese capital markets and increase capital inflows, and attract foreign direct investment, meaning “the capital account surplus will offset the impact of soft exports,” he said.