Talking Points:
A Review for the Yuan in 2017
The offshore Chinese Yuan (CNH) gained +7.3% against the U.S. Dollar in 2017 and the onshore Yuan rose +7.0%. Dollar weakness, Chinese regulator's guidance, as well as China's on-target growth have all contributed to Yuan's advance.
USD/CNH 1-Week
Chinese fundamentals set the foundation for a relatively stable Yuan. The country's growth rate target was set to be around 6.5% in 2017. Despite of the 25+ year low level, the economy has avoided hard-landing and financial catastrophe and is expected to achieve the target or even beat it. Also, the PBOC has implemented a prudent monetary policy in 2017, which was tighter than in 2016.
Dollar's weakness and PBOC's guidance were the other top drivers. From January to May, the USD/CNH remained mostly in a range, despite that the Dollar weakened over the same span of time. This caused the Chinese regulator's concern on a failing exchange rate regime. As a result, the PBOC introduced a counter-cycle factor in calculating Yuan's daily reference rate. This is a major adjustment in Chinese exchange rate regime since the PBOC de-pegged the Chinese currency against the Dollar in August 2015.
Following this move, the Yuan restored momentum against the Dollar in the third quarter and hit the yearly-high level of 6.4433. In the last quarter, the Yuan pair entered a range, amid Dollar's picking up and lack of domestic improvement. At the end of 2017, the USD/CNH fell to a long-term support zone (resistance for the Yuan).
Economic Growth Target: A Shift from Speed to Quality
