Stronger dollar will exert short-term pressure
The yuan is not on a depreciating path thanks to China's stable economy and the currency's internationalization process, but it faces short-term pressure due to the dollar's strength, the Xinhua News Agency quoted economists as saying on Wednesday.
In the long run, two-way volatility of the Chinese currency will be "quite normal," said the report.
The comments came after the yuan slid to 6.7396 against the dollar on Monday, the lowest level in more than six years, which prompted market concerns over a prolonged depreciation.
Market expectations of an interest rate rise by the US Federal Reserve, which drove up the dollar in recent days, were the major cause, said the report.
For example, the global dollar index, a gauge of the dollar's strength, has gained 3.5 percent in the past two months, the People's Daily reported on Wednesday. In recent days, the index jumped above 98 points, its highest level since March.
"The evidence for a stronger dollar has led to the weakening of non-dollar currencies, and that trend isn't limited to the Chinese currency," Richard Grace, chief currency strategist at Commonwealth Bank of Australia, was quoted as saying by the Xinhua report.
Meanwhile, the yuan's value against non-dollar currencies is rising, the report noted. The yuan's value relative to a basket of currencies surged 0.6 percent last week, the biggest gain in three months, despite a 0.8 percent plunge in its value against the dollar, Bloomberg reported.
China's stabilizing economy, its considerable current account surplus and $3 trillion of foreign reserves that the central bank holds to stabilize the currency means there is limited room for the yuan's further depreciation in the medium and long term, said the report.
The yuan will also be bolstered by its internationalization process, especially its inclusion in the IMF's Special Drawing Rights currency basket on October 1.
That development is expected to bring an increasing amount of overseas capital into the domestic market, the report noted.
On August 11, 2015, China's central bank carried out exchange rate reform, saying that it would set the yuan's daily central parity rate against a basket of currencies and the previous day's closing.
With the introduction of market factors, two-way fluctuation of the yuan will become the norm. The recent depreciation is a lesson for the market to adapt to the yuan's marketization process, said the Xinhua report.
