The pace of yuan depreciation should slow, and perhaps reverse, in coming months, as it finds support from economic fundamentals, government advisors told MNI, arguing that a weaker currency would not be in China's interests.

Yu Miaojie, a veteran trade expert advising several government departments, said dollar-yuan, which traded above 7.14 on Friday, will not breach 7.3, and is likely to bounce back to 6.9 within six months.

"The dollar could weaken if the U.S. economy deteriorates in Q4 under the impact of inflation driven by tariff hikes," said Yu. Also deputy dean of the National School of Development at Peking University, Yu said China should allow the yuan to fluctuate according to market forces and that a strong currency would enhance the country's image.

Zhang Huanbo, deputy director of the U.S.-Europe Research Institute, expected the yuan to stabilise once it reaches what he said was support around 7.2, after which it could then appreciate, depending on the progress of trade talks with the U.S., and on the relative performance of China's economy.

"Dollar-yuan is on the verge of reaching the support level within half a year," said Zhang, also a macro-economy researcher at the China Center for International Economic Exchanges, a think tank managed by the National Development and Reform Commission.

Mei Xinyu, a researcher at Chinese Academy of International Trade and Economic Cooperation affiliated with the Ministry of Commerce, said it was hard to say at what level the yuan would find support. But the People's Bank of China will not allow a large depreciation, which could lead to defaults by companies with dollar- denominated bonds, he said.

"Policymakers will be more prepared to allow the yuan to fluctuate within a wider range," Mei added.

Increased capital outflow might outweigh any benefits to exporters from a cheaper yuan, said Zhang. Beijing would not deliberately devalue, despite the U.S. move to label the country a "currency manipulator," he said.

"A stronger yuan will be conducive to the internationalisation of the currency," Zhang added.

The onshore yuan fell to levels not seen since February 2008 this week, closing at 7.1452 on Friday, taking its August fall against the dollar to 3.78% against the dollar, the most in a monthly since 1994.

From: marketnews.com August 30, 2019, by Wanxia Lin