More analysts now think China's currency will breach a key benchmark against the US dollar

(Jamie Squire / Getty Images)
  • There’s increasing speculation China’s currency will weaken below 7 against the US dollar.
  • The Chinese yuan trades in a pegged range against the USD, and it hasn’t climbed above 7 for more than a decade.

There’s increasing speculation that China’s currency, the renminbi (or yuan) may soon rise above 7 against the US dollar.

Such a move would be notable because it hasn’t happened in more than a decade.

China’s currency has come into focus this year as the trade war with the US continues to escalate.

In particular, some have questioned whether China will implement policies to intentionally weaken the yuan in response to US aggression.

However, leading Chinese officials have expressly stated they have no plans to devalue the yuan as a competitive weapon.

Despite that, the currency continues to fall. China’s onshore traded yuan (CNY) briefly rose above 6.94 today for the first time since January 2017.

And regardless of any intentional efforts on the part of Chinese policy makers, more analysts now expect the yuan will continue to fall in the months ahead.

“Slower economic growth, monetary easing and escalating trade tensions will all put the renminbi under pressure,” Capital Economics says.

In addition, the analysts said authorities are now less concerned about the prospect of increased capital outflows if the yuan crosses through the 7-mark.

“Capital controls are now more strictly enforced. There has been no meaningful shift in net outflows as the currency has declined from 6.4 in June to 6.9 today,” they said.

Capital Economics

“Further ahead, we think the renminbi will rebound in 2020,” the analysts added.

By that point, “policy easing should have stabilised growth in China, even as growth in the US falters and yields there fall in anticipation of rate cuts”.

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