Renminbi Series: Is Yuan Depreciation Over? Depends How You Look

Renminbi Series: Is Yuan Depreciation Over? Depends How You Look

21 April 2016, 11:09
Roberto Jacobs
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Renminbi Series: Is Yuan Depreciation Over? Depends How You Look

After reaching as low as 6.6 per Dollar in January, Chinese Yuan has gained against Dollar to 6.45 level and has been consolidating there since late March. Chinese currency is now positive (+0.2) for the year. In last three months, it gained around 1.6% against Dollar.

So, is the depreciation over for Yuan, at least for the time being?

Against Dollar, probably yes.

But is not as it seems. Yuan is still depreciating.

On a trade weighted basis, Yuan reached peak in August last year, according to Morgan Stanley’s NEER index and has been depreciating steadily since November and that trend hasn’t reversed yet. Yen may have reached some stability against Dollar but that is largely due to weakness in Dollar, rather than strength in Yuan.

In last 12 months, Yuan is down almost 10% against Euro and 3.75% YTD. Its performance is worse against Yen, as it down 9.5% YTD.

Moreover its appreciation against Dollar is in line with many emerging market peers. Indian Rupee is up 0.1% YTD against Yuan.

However, unlike depreciation against Dollar, which rattled global markets, this one is hardly making any mark, largely because interest rates remain very accommodative in other developed market currencies and there are no threats of immediate hikes.

This depreciation, nevertheless, likely to provide support to China, through trade, especially in Japan and in Europe.

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