Chinese Yuan set for best year since 2005

As reported by Bloomberg, the Chinese Yuan is set to record one of its best years since 2005 against the US Dollar, aided by the US Federal Reserve.

Key quotes

Even after data on Thursday showed a sharp downturn in China’s factory-gate price gains, the yuan hit its strongest against the dollar since July. It’s up more than 1.5 percent so far this week -- the most since July 2005 -- despite the central bank having moved to boost liquidity in the financial system.

Behind the resiliency: positive mood music from U.S.-China trade talks, and, perhaps critically, a shifting Fed outlook. Minutes from its December meeting showed American policy makers could place interest rates on hold through March or longer. That built on signals from Fed Chairman Jerome Powell last Friday about increased patience on tightening.

“The yuan can hold up fine” until the Fed hikes again, trade tensions resume and China “goes all-in on stimulus,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. “It’s a ‘when’ and not an ‘if’ for when it reverses direction again and we test new lows."

“The yuan is supported by trade optimism and a dovish Fed” at the moment, said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. in Singapore. Though Westpac doesn’t see the Fed has having finished tightening, she said the currency will settle around 6.85 to 6.95 per dollar this year.

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