ft.com/content/70b5b0b6-072c-11e8-9650-9c0ad2d7c5b5
>The yuan experienced its strongest monthly rally for almost forty years in January, and analysts are expecting further gains to come, even as its strength begins to hurt local businesses.
>The US dollar last month lost 3.4 per cent against the onshore renminbi, which is permitted to trade two per cent either side of a daily midpoint set by the People’s Bank of China, the central bank. That’s the renminbi’s best monthly performance since before the introduction of the managed float in 2005.
>The rally has pushed the currency past Rmb6.30 per dollar to its strongest level since the PBoC devalued the currency to boost growth in 2015, and has helped bring one heavily Asia-weighted index of emerging market currencies to its highest level on record.
>Freya Beamish, chief Asia economist at Pantheon Macroeconomics, suggested that “currency pressure is starting to hurt exports” out of China, pointing to weaker than expected results from an official survey of the manufacturing sector released on Wednesday.
>However, the PBoC is likely to be willing to put up with the pain for a few companies, according to analysts, with several revising their forecasts to predict a stronger currency in the months.
>ING, which already had a more bullish view on the currency, expects even more strength, with a 2018 forecast of Rmb6.10.
ING economist Iris Pang suggested the PBoC may be forced to step in to slow the pace of appreciation if it begins to attract more so-called “hot money” - investors who are liable to quickly move out again and potentially cause a sharp reversal - but the general direction of travel is expected to continue.
>Kiran Kowshik, emerging market FX strategist at UniCredit, said so far “authorities appear to be relatively relaxed ... compared to their attitude even three to four months ago”.