People’s Bank of China (PBoC), in response to stronger Dollar has weakened the fix to 6.5693 per Dollar, a level not seen since March, 2011. It has now surpassed the weakest fix level seen in January this year, which led to global financial turmoil. At that time, offshore Yuan, which is not subject to 2% trading bands around the fix, saw weaker widening of as much as 2%.
Compared to that it is I relative control so far. Offshore Yuan is currently trading at 6.563 per Dollar, weakest since February. Onshore Yuan is trading at 6.558 per Dollar.
It is becoming increasingly evident that recent Chinese stimulus not having the similar impact, it had, back in 2009 and marginal productivity of capital is diminishing fast.
With such China risks, instead of reforms and bringing down the bad loans, an increase in leverage. Speculative bursts in China’s equity markets, then corporate bond markets and then commodities market are evidence of this. Large sum of money looking for higher returns in China, and in absence of that so much Yuan flowing in the system is most likely to bring down its currency.
We, at FxWirePro, strongly expects Yuan to depreciate as much as 8-10% at least, going forward.