HomeContributorsFundamental AnalysisYuan Getting Cheap Rapidly

Yuan Getting Cheap Rapidly

China is depreciating its currency, paying no attention to what the US think about it. Today, the renminbi hit its 13-month lows against the greenback, and, most likely, it won’t stop here. The USD/CNY is now trading at 6.8123.

The yuan started its downtrend this April, while the depreciation got massive when the Fed signaled for keeping its aggressive monetary policy and continuing rate hikes. Meanwhile, the Chinese government does not have enough effective tools and methods to counter such policy and the greenback’s growth.

This is how People’s Bank of China decided to depreciate renminbi in order to keep good conditions for the exporters. Capital requirements for banks, as well as some other parameters, are changing, too. Thus, the Chinese central bank adjusts its policy to the ever changing conditions, in a very flexible way, without any attempts to counter the current situation.

Last Friday, Donald Trump said some central banks were manipulating the currency exchange rates, which led to the US dollar strengthening and created problems for the US business to be competitive. The greenback’s reaction was clear: it went down against the major currencies, but this did not affect the USD/CNY.

The PBC is likely to prioritize its depreciation policy for now, so we may well assume the USD/CNY will continue going down, at least before another Fed rate hike occurs.

Technically, the USDCNY is now heading towards the previous high at 6.9869, which has become the most likely target for the pair as of now. The uptrend is stable, but the closer the price gets to the high, the higher is the likelihood of a short term pullback. The short term ascending channel is meanwhile starting to go down towards the support at 6.7870. If this level gets tested and the price bounces, it may reach the resistance at 6.9020. There is another possible scenario, though: the price may break out the local support and reach the long term one at 6.7528. When the latter gets tested, we will see how much strong the current uptrend is. If it is really that strong, the price may then head upwards, aiming for the major high.

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