Yahoo Finance China’s Yuan Erases 2024 Losses Amid Broad Dollar Weakness
(Bloomberg) -- China’s onshore yuan erased its year-to-date losses amid bets capital will flow back to the country as the dollar weakens.
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The currency rose as much as 0.5% to 7.0905 per dollar on Thursday, a level unseen since December. With the Federal Reserve expected to start cutting interest rates next month, some investors see Chinese corporates repatriating their foreign-exchange holdings to the domestic market, bolstering the yuan.
“There is the potential for more near-term appreciation if we start to see herd behavior among exporters emerge,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group. “That 7.10 level is a key one as a clear break really opens up a large gap all the way toward 7.00.”
Heavy dollar selling from exporters was seen in the offshore market, which triggered some stop-loss orders, according to traders who asked not to be identified.
Stephen Jen, the chief executive of Eurizon SLJ Capital, said last week Chinese companies may be enticed to sell a $1 trillion pile of dollar-denominated assets as the US cuts rates, which could strengthen the yuan by up to 10%.
The move would be welcomed by the People’s Bank of China, which would have more room to ease monetary policy without worrying about a sinking currency and capital outflows. For most of the past year, Beijing tried to prevent the yuan from sliding rapidly, as its bleak economic prospects and a wide yield discount to the US weighed on sentiment.
On top of a weaker dollar, the Chinese currency was also boosted by an unwinding of a once crowded strategy that involved traders borrowing the yuan cheaply and selling it against a higher-yielding exchange rate.
“A sustained fall through 7.10 could invite more conversion flows if exporters believe dollar-yuan has peaked in the short run,” said Lemon Zhang, a strategist at Barclays Bank.
--With assistance from Aline Oyamada and Ran Li.
(Updates with context, prices and commentary from first paragraph.)
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