The year 2018 as seen the RMB have unprecedented gains.The currency had
its strongest monthly rally in almost 40 years. Analysts have now jumped
off “China will collapse train” and are now forecasting the RMB to continue
its ascent higher. The RMB has now broken the 6.3 barrier. Is 6.0 in sight?
The RMB has been held underwater like a ballon and as we all know pegged
currencies eventually skyrocket or collapse once the peg is broken. As we
have reported previously , the RMB continues to rise in parallel with
China’s FX reserves continuing to increase back towards the $4 billion mark.
This shows there is continued pressure for the RMB to rise.
UniCredit on Thursday said it expects the renminbi to hit Rmb6.20 per dollar by
the end of the year, echoing a similar call from HSBC on Wednesday. ING, which
already had a more bullish view on the currency, expects even more strength,
with a 2018 forecast of Rmb6.10.
Some forecasters are pointing to the increasing RMB hurting exporters, however,
China has labor rates now 400% higher than places like Vietnam and several hundred
percent higher than Mexico. Competing on low -cost labor is no longer a strategy
for China. A stronger RMB will support outgrowth of Chinese capital into the
One-Belt, One-Road projects and support acquisition of foreign companies and
infrastructure. As an example, JD.Com today announced it is going into Europe
to compete with Amazon. A stronger RMB will allow it to more easily buy up the
logistics infrastructure it will need.