The central parity rate of the renminbi has continued to rally, hitting
a seven-month high on Friday, up 0.03 percent to 6.807 against the greenback.
The rise comes after the onshore yuan reached a peak of 6.78 against the
US dollar on Thursday and offshore yuan reached its highest level since
October at 6.72 per dollar.
Investment bank UBS raised its year-end forecast for the renminbi exchange
rate from 7.15 to no more than 7, while projecting a mild slump of the
currency back to no more than 7.1 by 2018.
The lowered risk of China-US trade friction has contributed to the renminbi’s
rally, UBS economist Wang Tao said, adding that the foreign exchange reserve
will “likely remain above the $3 trillion mark this year”.
The improvement also comes on the heels of a tweak to the formula used to
calculate the renminbi central parity rate, announced last Friday by China
Foreign Exchange Trade System. The new formula allows a dealer to incorporate
a “counter cyclical factor” into the existing formula to hedge against
fluctuation in market sentiment.
The move will “alleviate the potential for herd behavior in the forex market,”
according to a statement by the CFETS. Details remain unclear as to when and
how the “counter cyclical factor” will be used.
Under China’s market-based, managed floating exchange rate system, renminbi’s
daily trading band against the dollar has been widened to 2 percent around the
central parity rate.