An editorial piece run by the state-owned Economic Information Daily contends that recent drops in the value of the renminbi are merely short-term shifts resulting in the provisional strengthening of the US dollar.
The renminbi has recently fallen beneath the key thresholds of 6.4, 6.5, 6.6 and 6.65 against the US dollar, with some observers expecting it to fall as far as 7.
According to Xinhua News Agency’s economic imprint, this decline is the result of the recent strengthening of the greenback, with the US Dollar Index surging by 6% during the period from 15 April to 15 June.
“Looking ahead, trends in the renminbi exchange rate will be primarily determined by whether or not the US Dollar Index continues to run strong.
“Looking at key factors that impact the US dollar, in future the US dollar will likely rise in the short-term and fall in the long-term, portending a stabilisation of the renminbi.”
The editorial points out that there is still considerable support for a strong US dollar in the short-term, with the Fed lifting economic forecasts for six successive quarters since March 2017, and first quarter GDP rising by 2.2% in real terms compared to the preceding quarter, ahead of expectations.
Tax cuts and regulatory loosening will further support US economic growth, while the dollar is also benefiting from several rate hikes implemented by the Fed in just the past year, alongside the lacklustre performance of the Eurozone.
According to the Xinhua editorial, however, the current firming of the US dollar will be a short-term affair.
“The US Fed has entered the second half for rate hikes, and the cycle for strengthening of the US dollar is already half way through.
“On top of this, other major central banks have already started to tighten their monetary policy, and the US dollar will come under pressure…conditions for a weakening of the US dollar have officially been established.
“The European Central Bank has forecast that it will fully withdraw from quantitative easing at the end of this year, with a schedule for a rate hike set for mid-year 2019.
“Even more importantly, in terms of both China’s economic fundamentals and room for policy manoeuvring, there is not much room for large-scale depreciation of the renminbi.
“With consumption upgrades and innovation drivers, China’s economic growth impetus is continually strengthening, and the economy is functioning stably overall while remaining quite resilient.
“At the same time foreign reserves are ample, and China’ monetary policy is comparatively independent.
“Exchange rates are a key measure of financial security and national security, and when necessary it would not be unreasonable to ‘put on the breaks,’ even if we can’t go into reverse when it comes to the opening of capital accounts.
“China will must be confident that it possesses sufficient capability to deal with external shocks, and at the same time further deep exchange rate marketisation reforms, continually improve renminbi exchange rate formation mechanisms, and strengthen the flexibility of the renminbi exchange rate.”