— This is the script of CNBC's news report for China's CCTV on September 18, 2020, Friday.
A stronger CHY has been the most a notable trend in FX market. We saw that the CNY rose to a 16-month high against the dollar on Wed. So, in addition to the relative condition of a weaker dollar, the fundamental support comes from China's relatively strong economic recovery.
Recent positive economic data on retail sales and industrial output have further bolstered investment sentiment. On the other hand, it is because of the continuous improvement of China's balance of international payments, On the one hand, due to the impact of the epidemic, expenditure on overseas travel, study and medical treatment was reduced, which helped China's balance of international payments continue to expand in the second and third quarters. China's economic recovery and financial openness are also attracting more investment in CNY asset.
On the other hand, the progress of internationalization is also continuing to inject momentum into the CNY. The inclusion of Chinese government bonds in the FTSE Russell Global Government Bond index WGBI is widely seen by market analysts as a highly likely event, that could lead to significant capital inflows, further boosting renminbi assets.
BofA Securities, Co-head of Asia Rates & FX Strategy
it's gonna be a big one, i mean end of this month, I think around Sep 24th, FTSE Russell will give an indication, in terms of the accessibility of china's bond markets, which could pave the way potential for china's inclusion into the world government bond index, which could result in another $140b worth of inflow into china, if anything we've seen over the recent months ,in my discussions with clients that increasing sense that, you know, we have to invest in china because of the yield situation and because of everybody being under invested in china for many years.
Another major factor behind the yuan's strength is that the dollar has entered a period of so-called structural weakness after years of strength. Goldman Sachs believes that the factors underpinning the dollar's rise have disappeared.
The bank has revised its forecast of exchange rate between yuan and dollar over the next 12 months from 6.7 to 6.5 yuan.
co-head of Asia macro research and chief Asia-Pacific equity strategist at Goldman Sachs.
You can call it the loss of US exceptionalism, previously the US dollar was stronger, because, A, the US economy is growing better than the rest of the world, B, you had significant carry better than elsewhere. That is why people like to hold us dollars, both of those, actually, have gone in reverse. We actually think that EU will grow faster than the US next year. And there is no appreciable difference, in terms of carry you get the US dollar vs those elsewhere.
Analysts at Nomura securities in an interview with CNBC further noted that the dollar could see more downside if Biden wins. The exchange rate of the yuan to the dollar could rise to 6.4 within six months or even further.
At present, the continued appreciation of the RENMINBI has become widely expected by the market. So, enterprises and individuals engaged in import and export trade and other related industries should take risk control. We will keep a close eye on the trend of the CNY exchange rate.