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The Chinese yuan is expected to remain relatively steady in Q2 while trading along with a broader market tone in the months ahead. On the other hand, as the credit-fuelled growth could raise risks to the real economy down the road, the yuan is expected to face some headwinds in H2.
The United States Treasury Department has chosen not to brand China a currency manipulator in an official semiannual FX report released last Friday, even though it still kept China on a previously established Monitoring List.
Premier Li Keqiang said Tuesday that market confidence in the yuan currency has significantly improved and the nation will keep yuan basically stable at a reasonable and balanced level. The State Council, Chinas cabinet, said Wednesday in a statement that the nation should make more forceful adjustments to fiscal and monetary policies if new urban jobs fell sharply and the unemployment rate rises significantly.
"Meanwhile, we note the PBoC has persistently set USD/CNY fixing with a downward bias in the past week. It means the central banks daily reference rate will slide markedly if the DXY Index tumbles overnight. In addition, China is on track to reach its economic growth target for 2017 due to booming credit supply," Scotiabank commented in its latest research report.
