The Chinese yuan is rebounding from a two-week low as economic worries dissipate. The yuan, which was one of the weakest Asian currencies last year, is gaining on reports that the federal government does not want to see it weaken too much should it affect trade negotiations. There has been talk that the worldâs two largest economies are inching towards a new trade agreement.
As the yuan makes gains against its major currency rivals, there are concerns that optimism over trade deliberations, which have fluctuated for weeks now, will be unable to lift it any higher. Unless the US dollar experiences a steep drop or an official announcement is made about a trade pact, the yuan might not see any more momentum buoyed by optimism.
In the aftermath of economic data that showed the Chinese economy is cooling down, experts widely anticipate Beijing to unleash more aggressive stimulus measures. It is unclear what else the leadership may have in mind.
The federal government has confirmed a series of across-the-board tax cuts, complemented by slashing the reserve requirement ratio to spur lending and approving nationwide infrastructure projects. The Peopleâs Bank of China (PBOC) has kept interest rates low and maintained a more accommodative policy to avoid shocks to the system.
Goldman Sachs has already sounded the alarm that more intensive stimulus is needed to stabilize the worldâs second-largest economy. Jan Hatzius, Goldmanâs chief economist, told Bloomberg that $13 trillion will be necessary to reverse the slowing trends that could seep into the economy in the second half of 2019.
We donât think itâs going to be an aggressive amount of stimulus. But we would expect some stabilization as we move through 2019 in the Chinese economy.
The most important driver really has been the credit deceleration and the concerns about financial imbalances on the part of the policy makers that has led them to pursue stricter policies. To us, that is the main swing factor in a negative direction in 2018, maybe in a slightly more positive direction in 2019.
Despite appreciation in the start of 2019, hedge funds and money managers are forecasting a year of volatility for the yuan, especially if the trade war persists.
The USD/CNY currency pair tumbled 0.24% to 6.7919, from an opening of 6.8078, at 17:44 GMT on Wednesday. The EUR/CNY fell 0.02% to 7.7336, from an opening of 7.7334.
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