Commerzbank’s Volkmar Baur highlights that the Chinese Yuan (CNY) is experiencing a slow pace of appreciation against the US Dollar, primarily due to ongoing weakness in China’s domestic economy [1]. Investment in China fell by 7.2% in the first eight months of the year compared to the same period last year, with an estimated 11% year-on-year drop in August alone [1]. The construction sector saw new construction starts decline by more than 30% year-on-year, and investment in both infrastructure and manufacturing sectors also continued to decrease [1].
Retail sales growth was minimal, rising only 0.4% year-on-year, and when adjusted for inflation, real sales actually fell by 0.4% year-on-year [1]. Despite these domestic challenges, China’s economic growth remains export-led, with a growing trade surplus that supports both economic growth and the currency by attracting foreign capital [1].
However, the CNY’s appreciation against the US Dollar has lost momentum. Earlier in the year, the CNY was appreciating at about 1% per month (except for March, during the onset of the Iran conflict), but this rate has recently slowed to approximately 0.5% per month [1]. Commerzbank expects only gradual further appreciation of the CNY for the remainder of the year, citing persistent domestic economic weakness as a limiting factor [1].
CONCLUSION
Commerzbank anticipates that the Chinese Yuan will continue to appreciate slowly against the US Dollar, constrained by weak domestic demand and declining investment. While a strong trade surplus provides some support, the overall market sentiment remains cautious due to ongoing economic challenges in China.