BEIJING — Despite looming depreciation pressure on the yuan, China’s sound economic fundamentals are set to determine that the soon-to-be global currency remains stable in the long run.
The yuan continued to weaken against the US dollar on Oct 25, breaking its six-year low for a third straight trading day. The central parity rate softened by 54 basis points to 6.7744, according to the China Foreign Exchange Trading System.
It was the weakest level since September 2010 as rising market expectations for a US interest rate hike saw the dollar maintain its gaining streak.
The slip on Oct 25 narrowed markedly from 132 and 247 basis points on Oct 24 and Oct 21, respectively.
The currency has depreciated by 1.45 percent against the greenback this month.
Analysts mainly attributed the lackluster performance to a surging dollar, but despite short-term volatility the chance of a sharp depreciation is slim due to stable economic growth, a large trade surplus, ample foreign exchange (forex) reserves and the yuan’s internationalization.
“The yuan’s recent weakness is a reflection of the US dollar’s strength,” said Liang Hong, researcher with investment company CICC, adding that there have been no significant changes in economic fundamentals over the past few weeks.
Liang said the yuan’s slip is likely to continue over the next year but ruled out any substantial falls, believing the authorities will control downward risks.
China has managed to maintain the yuan’s stability and strived to establish a transparent and market-oriented exchange rate mechanism, Yi Gang, deputy governor of the People’s Bank of China, the central bank, said in an editorial published on Oct 25 in the People’s Daily, the official newspaper of the Communist Party of China.
“The yuan has stayed stable against a basket of currencies and is less volatile than most reserve currencies and emerging market currencies,” he said.