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Chinese currency is strengthening

The Chinese economy is the world's first economy to recover from the pandemic, and it seems its currency is coming along for the ride. The yuan has shot up to its strongest level in 2.5 years against the US dollar in 18 months. And at 6.46 CNY per dollar Monday, it looks ready to jump even more. In mid-2014, the currency was hovering pretty close to breaching 6 CNY.

This might not seem like a big deal for any other currency, but for China, which is notorious for keeping a tight leash on its currency, it is unusual. A stronger yuan has direct implications for companies that have factories in China. It could make those goods costlier in the rest of the world, although the effect is somewhat muted up until now.

Investors world-wide are getting attracted to China. At a time when interest rates around the world are approaching zero, China's benchmark rates (at 3.85 percent) look lucrative. Higher returns have encouraged investors to buy yuan assets.

However, some of the yuan's strength is relative. The US dollar has been weakening as the Chinese currency is gaining. With respect to euro, the yuan has barely changed, with the euro itself gaining 9.9 percent against the USD since then. But what this means is a weakened USD might further push investors to move their money to safe-haven currencies and riskier assets — emerging markets such as China being the prime destination.

Click here to read the full article.


Photo source: Dreamstime.com


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