China to keep yuan currency from sliding below 7 to the US dollar as part of trade war deal, analysts said
- US dollar may be reaching its peak given the outlook of fewer US rate hikes and weaker US growth next year, easing depreciation pressure on the Chinese yuan
- The People’s Bank of China has plenty of ammunition to keep yuan from depreciating, if necessary
China will probably continue to prevent the yuan exchange rate from falling further as a prerequisite for a trade deal with the United States before the March 1 deadline, analysts said.
The People’s Bank of China (PBOC), the nation’s central bank, has successfully intervened in the market to keep the yuan stronger than seven to the US dollar and is expected to continue to do so.
The Trump administration has frequently warned China against using its exchange rate for competitive devaluation purposes.
Between late-March and October, the PBOC let the currency slump 12 per cent toward the key seven yuan to the dollar level amid the outbreak of the trade war with the United States, a strengthening of the US dollar and higher US interest rates.
But the yuan’s decline came to an abrupt halt and rebounded for the first time in eight months in November before trading in a range between 6.83 and 6.92 per US dollar in December, which analysts interpreted as a shift in PBOC policy to focus on stabilising the currency as part of the deal for the US holding off on further tariff increases.
Through capital controls and the daily yuan reference rate, the PBOC appears to be preventing the yuan from breaking the seven to the dollar level, which could adversely affect US-China trade talks and business confidence as well as a significantly increase capital outflow pressure, analysts said.
