The Yuan displaces the dollar in the last sessions, after a difficult week for the American currency in the Forex market.
The environment has been favorable for the Yuan, with a good start to the week in the currency market. And while many investors are turning their full attention to the Chinese Yuan, the future of the Asian currency may not be as prosperous as expected.
The United States continues to go through turbulent times that will continue to affect the dollar, yet analyst confidence remains scattered.
The Yuan regains ground in the currency market
Stock market futures showed mixed humor, but had not been as busy as Monday.
The data, in particular the employment figures for the United States, which were better than expected, helped lift the spirits. But with the resurgence of COVID-19 cases and with new presidential nominations being announced, the dollar began to stumble.
Elsewhere, the Yuan has strengthened significantly in the past few days after a surge in mainland China’s stock markets, with the Shanghai compound rising nearly 6% on Monday alone.
Due to complicated days for the dollar, and all the environment of uncertainty that the American currency provided for investors, the Chinese currency began to cry out for the interest of businessmen.
Investors were looking for risky assets amid rising expectations of a strong economic rebound in China, after the country’s government declared new measures to take.
With a promise of a stable economic resurgence on the part of the Chinese economy, the yuan, it was once again present in the minds of investors.
Stocks continue to rise, and the Chinese are booming, despite the rapid increase in the spread of the coronavirus. China’s FTSE A50 Index hit record highs for the week.
Can the Yuan really replace the dollar?
The Chinese currency was the best performer for the week. As investors stopped worrying about diplomatic tensions between Washington and Beijing to focus on the more optimistic data. The rise of the Chinese economy and its attractive technology sector.
Although the Chinese Yuan has become the currency on the rise in recent days, relevant analysts of the currency market consider that this event should not be taken as weight in investor decisions.
“Don’t expect the Chinese yuan to become a” safe haven “alternative.
Ebrahim Rahbari, Global Head of Currency Analysis at Citi.
The truth is that it is considered that the Chinese currency will not be able to maintain this performance for a long time.
It is worth mentioning the relevance of refuge assets. Well, in this time of uncertainty that is happening for the United States and its currency, redirecting investments to these assets is a good option.
So-called safe haven assets often have certain attributes. First, they tend to offer a long-term storage function of value. In the short term, they also provide “refuge” during “periods of crisis”.
However, relevant forex market analysts consider that the Yuan does not qualify as an asset of refuge under these circumstances. Well, it is not so easy to position yourself that way.
“You cannot enter and exit the currency market. Both in terms of how easy it is to access these markets, but also because liquidity is not present in many of the assets, ”said Rahbari.
The future of the Chinese currency
Why the Chinese Yuan started to soar in the market is simple.
The sense that the Asian region is recovering, that perhaps China’s asset markets are catching up with the positive sentiment around it, has made investors feel confident.
However, when analyzing the Chinese currency, one must always bear in mind the contrast between the Asian outlook and the general situation with the dollar.
Although both currencies are currently in negative ranges, it is expected that the dollar will dominate at some point. For now, there is still a long way to go to the Chinese Yuan.
Yuan price to date
At the time of writing, the yuan is trading at CNY 6.9941 for every dollar. Thus, the Chinese yuan sets the pace in the Forex market, maintaining a good performance.
In summary, although the Chinese Yuan continues to be relevant in the Forex market, the general opinion remains doubtful if the Chinese currency could displace the dollar. And if it will manage to stay with these ranges in the market.
It only remains to wait to know the future of this currency.