(Bloomberg) -- Yuan watchers are strengthening their estimates for the currency, citing a declining dollar and support from Chinese policy makers.
At least 14 have raised their predictions for the currency in the past week alone, with the median estimate in a Bloomberg survey now seeing a year-end level of 6.90 against the dollar, or 3.6 percent stronger than forecasts given at the beginning of 2017. The yuan has climbed 3.3 percent this year to trade at 6.7232 as of 5:53 p.m. in Shanghai on Thursday.
The change in sentiment comes amid an effort by Chinese authorities to push back against depreciation pressures, with several officials and state-run media coming out to say that the exchange rate will be stable. The Politburo -- the Communist Party's highest decision-making body -- on July 24 called for policy consistency to create a “favorable environment" ahead of a meeting in the fall. Signs of a steadying economy have helped as well, with export growth accelerating in June and industrial profits climbing.
"The PBOC would probably maintain yuan strength ahead of the Party Congress in the fourth quarter," said Ken Cheung, an Asian currency strategist at Mizuho Bank Ltd. in Hong Kong. “China has the incentive to seek yuan strength, given its policy priority has shifted to attract inflows as growth momentum remains intact in the first half."
Options traders, convinced that the Chinese currency isn't going to return to a depreciation path, have driven down demand for dollar call options, which can be used to speculate or hedge against yuan weakness.
"The yuan's advance so far this year has been convincing enough to break its three-year-long depreciation trend, which is a major victory for the PBOC in defending the yuan," Dariusz Kowalczyk, Hong Kong-based senior emerging-market strategist at Credit Agricole CIB, wrote in a note on Aug. 1. The bank revised its end-2017 forecast for the yuan to 6.75 per dollar from 6.85 previously.
--With assistance from Mark Cranfield
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net, Emma Dai in Hong Kong at edai8@bloomberg.net.
To contact the editors responsible for this story: Robin Ganguly at rganguly1@bloomberg.net, Ron Harui
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