Bloomberg: Continuation of the yuan rally is questionable

08 December 2022 68
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Source: Bloomberg

Author: Charlie Zhu, Wenjin Lv and Ran Li

Article: Original article

Publication date: Thursday, December 8, 2022

 

The yuan's rally, sparked by optimism in China, will soon face reality. Doubts among investors are growing. They wonder whether the economic recovery will catch the currency's rapid growth.

 

The yuan recouped nearly a third of its yearly loss last month and broke above the key 7 per dollar level on Monday. Societe Generale AG suggests that a rise above 6.95 is probably exaggerated, while strategists at UBS Group AG expect the yuan to end the year at 7 per dollar and weaken in early 2023 with large swings.

 

Analysts are concerned that the euphoria will fade as growth data are likely to be weak, and the virus could disrupt the economy once again when Covid restrictions are lifted. Ting Lu, chief China economist at Nomura International, thinks that the opening of the economy is a key precondition for China to return to its potential growth path. However, he notes that the real picture may not be as rosy as it seems.

 

Forecast: correction growth of USD/CNY.

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