China's Yuan Rallies as Economy Recovers
By Joanne Chiu
China's yuan strengthened to levels last hit in March, as
confidence builds that the country's economy is shaking off the
coronavirus pandemic, and as local stock markets soar.
On Thursday, the currency traded at better than 7 to the dollar
in both the tightly controlled onshore market and freer offshore
markets in Hong Kong and elsewhere.
Craig Chan, head of global foreign-exchange strategy at Nomura,
said a weaker dollar, China's improving economic outlook and the
limited nature of recent Trump administration actions against China
had all helped buoy the currency.
"One thing that tipped the scale was a quite substantial pickup
in portfolio inflows into China," Mr. Chan added, referring to
increased purchases of Chinese stocks and continued buying of
Chinese bonds by foreign investors.
Recent survey data has shown economic activity gathering
momentum, suggesting Beijing's uncompromising approach to the
coronavirus pandemic is starting to pay dividends.
Some economists expect data due next week to show China's
economy grew in the second quarter, after a 6.8% contraction in the
first. Larry Hu, chief China economist at Macquarie Capital Ltd.,
estimates gross domestic product will be up 3% from a year
"It's a V-shaped recovery, but the question remains how
resilient it's going to be in the second half," he said. He expects
full-year growth of 2%.
Share indexes in China, such as the Shanghai Composite and the
CSI 300, have surged to multiyear highs in recent days.
Foreign investors bought a net 55 billion yuan ($7.85 billion)
of mainland stocks in the first five trading days of July through
the Stock Connect trading link in Hong Kong, Wind data shows. That
exceeds the total for all of last month.
Ken Cheung, chief Asian foreign-exchange strategist at Mizuho
Bank in Hong Kong, said if China's government succeeds in its aim
of fostering a "healthy bull market," the yuan could trade around
6.95 per dollar in the near term. But if the U.S. imposes financial
sanctions on China or on Hong Kong banks, he said, the yuan could
Further out, Mr. Chan at Nomura said if Joe Biden wins
November's presidential election it could spur a further rally in
the yuan, given the presumptive Democratic nominee's approach to
China would likely differ from President Trump's.
As of midafternoon Thursday, the onshore yuan stood at 6.9895 to
the dollar, while the offshore yuan was at 6.9890. After years of
preventing the yuan from weakening beyond 7 to the dollar, Beijing
let it cross that threshold as trade tensions tightened last
summer--with the central bank saying the passage wasn't
irreversible. Since then the yuan's value has ranged between
roughly 6.85 and 7.20 to the dollar.
Write to Joanne Chiu at firstname.lastname@example.org
(END) Dow Jones Newswires
July 09, 2020 04:23 ET (08:23 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.