Scenarios for the next years
We thing that this lesson will most likely be the most interesting for many students. Of course nobody knows what will happen in the future. However, a large number of signs may give us different forecasts.
USDCNY until 2019
In this relatively short period of time, charting will play a bigger role and, combined with the global economy, it will suggest that the USDCNY price will be between 5.90 and 6.1 in the beginning of 2019. Provided that the PBC does not intervene to affect the rate.
USDCNY until 2019
China’s importance in the world will continue to grow over the next three years and the Yuan will increasingly reflect this growth. This will lead to a further appreciation of the currency and thus to a falling price of the USDCNY. Based on today's value, we can cautiously reckon an additional decrease of 20%. This leads to a cross rate of 1:5.
USDCNY until 2030
By the year 2030, the Yuan will be the world's number 2 currency, surpassing the Euro. Considering this the cross rate will continue to fall in the direction of parity 1:1 might sound crazy, but if you have a look at all important currencies, you will see that almost no cross rate is above 1:2.
The Japanese Yen is an exception. In the JPY, the pip is in the second decimal place and not, as usual, at the fourth decimal place.
Different Scenarios – What happens when?
USA boycott Chinese products completely
If the US was to completely boycott the Chinese products (which is extremely unlikely), then a very large consumer of Chinese products would break away. No other country currently buys so many Chinese products as the USA. As a result, China's economy would suffer big losses and would likely plunge into depression. If that was to happen, as the markets around the world are closely linked, it would have a seriously negative impact on the entire global economy. As a result of the US boycott, the yuan would drop significantly. In other words, USDCNY would go up.
USA central bank rise its interest rates faster than China
If US interest rates rose faster and stronger than those of China, the USD would appreciate faster than the Yuan, this would lead to a rise of the USDCNY price. Again, this scenario is unlikely as even a weak Chinese economy it would still be growing faster than the US economy.
Chinese government pushing its economy harder than expected
If the Chinese government was to push its economy more and harder it could lead to a burnout. What may sound positive in the first place, can also lead to catastrophic risks.
Assuming the economy in China overheats: An economy usually overheats at the end of a boom. A boom is characterized by the following features:
- The capacity of the economy is fully utilized, in part, demand can not be met
- Price increase and rising inflation
- Private consumption is at a peak
- High interest rates
- High wage level
- Strong currency
At the peak, however, the burnout of the economy reverses the trend. There is a stagnation as production cannot be increased further. The market is saturated and there is no growth. As such there is often a recession or even a depression.
This scenario shows how important it is to look for reasonable growth.