Oct 24, 2020 06:35 PM

Yuan’s Rally Against Dollar Is ‘Relatively Mild,’ Foreign Exchange Official Says

What’s new: The recent appreciation of the yuan is “relatively mild” but companies should prepare for risks brought by currency volatility, a deputy head of the State Administration of Foreign Exchange (SAFE) told a briefing (link in Chinese) on Friday.

Wang Chunying said the yuan has appreciated against the dollar by 4.5% since the beginning of 2020, while the euro has appreciated 5.9% and the Japanese yen has grown 4.1% stronger. Therefore the yuan’s performance is “in line with those of major currencies,” she said.

In the future, the yuan exchange rate will likely maintain basic stability under the effects of internal and external factors, Wang said.

However given the exchange rate’s two-way volatility, companies should actively work to mitigate exchange rate risks, she said.

What’s the background: On Friday, the central parity rate of the yuan stood at 6.6703 against the dollar, reflecting a much stronger yuan compared with the rate of 6.998 on Aug. 3.

The CFETS RMB Index, which measures the yuan’s strength relative to a basket of currencies, soared over 4% since the beginning of this year, analysts of China Merchants Securities Co. Ltd., said in a Wednesday research note (link in Chinese).

The main reason for the yuan’s growing relative value is the economic recovery China has seen in the wake of the coronavirus epidemic being brought under control, analysts said.

Earlier this month, the People’s Bank of China announced (link in Chinese) that it would lower the foreign exchange risk reserve ratio for forward forex trading from 20% to zero, effective Oct. 12. The central bank’s move has been interpreted by some as telling the market that it hopes to stabilize the currency and does not want the yuan to appreciate further.

Related: Not Even China Can Stop Yuan’s Rally

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