(15 December 2020 – China) The Chinese Yuan (CNY) could appreciate to US$6.000 on strong funds inflows as foreigners increased demand for the Chinese ‘Red Back’ in 2021 according to Citigroup.
A veritable flood of foreign funds will hunt Renminbi (RMB) denominated assets in 2021 attracted by their superior yield amid the prevailing low and negative interest rate environment, coupled with continued weakness for the greenback. The Yuan has not been so heavily supported since late 1993, just before China’s unification of official and market exchange rates triggered a significant correction in the currency.
CNY has been heavily bid since Q2 2020, jumping to a two year high with the USD/CNY currently trading at US$6.5388 as official economic data indicated China was rebounding from the COVID-19 pandemic faster than any other country globally. In fact, China is likely to be the only country with positive economic growth in 2020 and will continue to record strong growth into 2021 and beyond according to the Organisation for Economic Co-operation and Development (OECD). The OECD projects that after a 4.2 percent slide in 2020, the global economy will reach pre-pandemic levels in 2021. Overseas funds have increased their holdings of onshore bonds and stocks by more than a third this year to records, prompted by index inclusions and the country’s wide interest-rate premium over other markets.
East & Partners Global Currency Forecast analysis reveals Asian enterprises across Hong Kong, Malaysia, the Philippines and Singapore predict the USD/CNY to weaken below US$7.105, based on direct interviews with CFOs of 1,864 importers and exporters across each region with average forecasts ranging from US$7.004 for Hong Kong to US$7.204 for Singapore.
“The problem China faces next year will be huge, unrelenting capital inflow. The Yuan’s appreciation will be a key threat to China’s macro economy” stated Citigroup Chief China Economist, Liu Li-gang.
“With the astonishing influx in capital directed towards Chinese bonds and equities, we predict the USD/CNY could strengthen by ten percent above US$6.000 or more” Liu Li-gang added.