(ATF) The People’s Bank of China (PBoC) set central parity for the yuan with the US dollar at 6.6930 this Tuesday morning. It was the strongest fixing since April 18, 2019.
Still, it underestimated the Chinese currency’s buoyancy. The onshore yuan (CNY) traded at 6.6854 at 4pm HK time. The offshore deliverable version (CNH) at the same time stood at an even stronger 6.6745 and had hit 6.6673 in morning trading, its strongest level since mid-July 2018.
There’s no mystery in the renewed yuan bull run, nor in the Hong Kong dollar’s continued strength. Its trading flush up against its upper intervention level of 7.75 to the US dollar.
The latest push upward for the Chinese currencies came with this morning’s announcement by the Hong Kong stock exchange that the IPO application of Ant Group had been approved, opening the way toward a dual Hong Kong/Shanghai listing of the Alibaba affiliated fintech giant, which could prove the world’s largest at US$35 billion, outdistancing the $29 billion Aramco initial offering.
Investors are positioning for the IPOs expected before the US election and are piling into Jack Ma-related stocks across the board.
The push upward for the yuan – and Monday was no less remarkable – reflected the strong Chinese 3rd quarter GDP number of 4.9% year-on-year, almost on par with pre-Covid 19 levels. The growth rate undershot the 5.5% expected by most economists; still, the year-to-date expansion of 0.7% shows that the economy has made up all the ground lost during the Covid period.
More relevant to the abiding strength of the yuan is the strength of domestic demand in the GDP composition. Imports grew by a wholly unexpected 13.2% in September. Retail sales were up by 3.3%, double of what economists had forecast.
Strengthening of domestic demand is, of course, the key element of the “dual circulation” economic policy strategy announced by the government in early August and once again emphasized by President Xi Jinping in Shenzhen during his recent southern tour.
And a strong currency is a key ingredient of the strategy. Naysayers have time and again warned that the PBoC might be tempted to slow the sharp rise of the yuan since early July.
It has not happened and it is my forecast that it will not happen any time soon. The yuan reached its highest level against the US dollar in recent history of 6.01 in early February 2014.
That’s where it’s headed again and 6.0 remains my firm 3-year target.