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Yuan erases 2021 gains against dollar as central bank steps aside

THE Chinese yuan gave up all its 2021 gains against the US dollar suggesting a sell-off in the face of a quicker economic rebound from the Covid crisis than expected 'The PBOC [People's Bank of China] will have tools to deal with any sharp depreciation, and it looks to be comfortable with the yuan correction for now,' Ken Cheung, chief Asian currency strategist at Mizuho Bank, told Bloomberg

12 April 2021 - 19:00
THE Chinese yuan gave up all its 2021 gains against the US dollar suggesting a sell-off in the face of a quicker economic rebound from the Covid crisis than expected

'The PBOC [People's Bank of China] will have tools to deal with any sharp depreciation, and it looks to be comfortable with the yuan correction for now,' Ken Cheung, chief Asian currency strategist at Mizuho Bank, told Bloomberg.



The yuan's decline in March, affecting the price of Chinese exports, was the biggest monthly drop in a year, has arrested a steady advance that saw it head toward 6.4 from a low of 7.18 against the dollar last May.



Investors flooded into Chinese bond markets in 2020, boosting yuan usage and furthering China's ambitions to internationalise its currency. reported Bloomberg.



But, a spike in Treasury yields is now cutting into the yuan's yield premium, while an FTSE Russell index inclusion will now take place over a much longer period, slowing inflows.



Add tensions between Beijing and Washington, and all these are speed-bumps for a currency that jumped almost seven per cent against the dollar last year.



Of yield spreads, Thu Ha Chow, Loomis Sayles Investments Asia in Singapore said: 'Last year, 10-year US versus Chinese government bonds were glaringly attractive whereas that's compressed now. Dollar-yuan can go up a bit, but not to the worrying levels like what we saw.'




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