Is the Yuan Stronger Than the US Dollar In Long-Term?

What is the prediction for the Yuan to USD?

Forex markets whisper tales of anticipation and foretell the narratives of economies. The USD/CNYpair is no stranger to this drama, with every tick echoing the profound influence of central bank policies and the pervasive specter of inflation. As 2024 unfolds, the Yuan’s stance against the Dollar will likely be sculpted by the hands of these financial titans, their monetary strategies shaping the canvas of exchange rates.

Yet, the plot thickens beyond the corridors of central banks. The forthcoming U.S. election looms large, promising to imprint its mark on the USD/CNY story. The political compass of the world’s largest economy can sway investor sentiment and trigger ripples across the Pacific, potentially altering the course of the Yuan’s voyage. What else lurks on the horizon to sway the balance? Supply chain adjustments, technological advancements, and even energy policies could all cast their shadows on the Forex stage.

USD/CNY Long-term chart

Peering at the long-term chart (as shown in the image above), we observe the Yuan’s trajectory within a defined channel, a visual narrative of resilience and resistance. Starting from 2022, US dollar has gained a lot of strength against the Chinese Yuan, and continues to be on an upward trajectory. However, 2024 may show that the 7.35 resistance level will prove to be an insurmountable obstacle for the bulls.

For a deeper understanding of the complexities of the Chinese Yuan, you may find an excellent resource available in our article How to Trade Yuan in Forex?

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Forecast for the USD to Yuan for 2024 and 2025

As we sail into the future of currency exchange, the USD to Yuan forecast remains a hot topic among financial institutions and market observers. With 2024 and 2025 on the horizon, we delve into the predictions of esteemed financial entities and analytics groups to gauge the path of this pivotal exchange rate.

Goldman Sachs: A Calculated Ascendancy to 7.3

Goldman Sachs, a bellwether in financial prognostication, envisions the USDCNY exchange rate being between 7.3 and 7.15 ranges by the close of 2024. Their analysis suggests that while the Chinese authorities have been actively managing the yuan's value to curb depreciation expectations, the real impetus for a stronger CNY would necessitate a robust recovery in Chinese growth and a relative outperformance of its asset markets.

However, Goldman Sachs expresses skepticism about such a scenario materializing in the near term, given the mixed economic indicators, the ongoing decline in property prices, and a subdued inflationary environment within China.

Standard Chartered Bank: A Nuanced Perspective

Standard Chartered Bank offers a nuanced perspective on the yuan's trajectory, anticipating initial support for the CNY leading into the Lunar New Year, traditionally a period of positive seasonality for the currency. However, they warn of potential headwinds thereafter, particularly in the first half of 2024. The forecast by Standard Chartered suggests that the yuan may confront challenges that could see it testing levels between 7.15 and 7.35 against the dollar, but that it will ultimately settle around 7 by the end of 2024.

This outlook is predicated on the persistent rate differential that is expected to remain wide, as rates in developed markets are likely to stay elevated while China maintains lower rates. The bank also highlights the structural differences in inflation rates between China and developed markets, which will likely contribute to a persistent policy rate difference. Despite the possibility of rate cuts from the Federal Reserve by the end of 2024, Standard Chartered maintains that U.S. rates will remain significantly higher than those in China, exerting pressure on the CNY.

Societe Generale: Positive Outlook for USD

Societe Generale forecasts the rate of 7.5 all throughout the first half of 2024, with a slight recovery by Yuan to 7.3 ranges by the end of the year.

Societe Generale underscores the strategic measures taken by the People's Bank of China (PBOC) to mitigate CNY depreciation, noting that such efforts have become a steadfast component of the bank's policy toolkit. However, Societe Generale forecasts that the divergence in monetary policy, especially with a steadfast U.S. Federal Reserve, will continue to exert upward pressure on the USD/CNY pair until there is a discernible shift in the Fed's stance.

The bank posits that the PBOC might slightly favor lower local interest rates, potentially leading to a marginally higher USD/CNY exchange rate. This stance suggests a delicate balancing act by the Chinese central bank as it navigates between supporting local economic growth through accommodative monetary policy and managing the exchange rate.

Panda Forecast: A Subtle Shift to 7.4 in 2025

Looking further ahead, Panda Forecast projects a subtle appreciation of the Yuan, with a weighted average target level of 7.329 for the USD/CNY currency pair by 2025. This suggests an anticipation of strengthening Chinese currency over the two-year span, a hypothesis potentially rooted in China’s robust economic growth, technological advancements, and an expanding role in international trade.

While explicit reasons for this projection are not detailed, it's plausible that the forecast incorporates expectations of China's continued economic reforms, further integration into global financial systems, and its strategic initiatives like the Belt and Road. These factors, combined with a potential easing of tensions with the U.S. post-election, could foster a favorable climate for the Yuan.

UBS: A Spectrum of Possibilities

In contrast, UBS presents a more nuanced view, predicting the USD/CNY pair to oscillate between 7 to 7.2 in the end of 2023 and beginning of 2024, while also acknowledging that rates surpassing 8 are within the realm of possibility for 2024. Such variability underscores the inherent uncertainties and the impact of short-term market sentiments influenced by immediate economic data releases and geopolitical events.

It's imperative to acknowledge that these forecasts are sophisticated estimates based on current knowledge and do not serve as financial advice. The future is painted with strokes of uncertainty, and as such, these predictions should be viewed as expert opinions that carry the inherent risk of deviation from actual future events.