Commerzbank FX & Commodity Analyst Volkmar Baur argues that China’s large trade surplus, driven increasingly by green technology exports, is supporting a stronger Chinese Yuan. The bank expects USD/CNY to remain in a 6.75–6.80 range near term, with a gradual appreciation of the CNY against the US Dollar, while EUR/CNY is forecast to rise as the Euro strengthens.

Trade surplus underpins CNY stability

"China therefore remains in the comfortable position of posting a high foreign trade surplus. As a result, large sums of foreign currency continue to flow into the country each month, seeking investment opportunities."

"A look at the foreign currency settlement data from Chinese banks shows that significantly more US dollars are still entering the Chinese banking system each month than are leaving it. Consequently, Chinese state-owned banks in particular continue to build up their foreign exchange reserves."

"The stable performance of the CNY is therefore likely to continue in the coming months, as this is in line with the Chinese government’s wishes. For most of the past two and a half months, the USD/CNY exchange rate has moved sideways between 6.75 and 6.80."

"Looking ahead, we expect the CNY to continue to move within this range. We still expect a slight appreciation - albeit at a slower pace than before - against the US dollar to support the internationalization of the RMB."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)