China's yuan has fallen to the lowest rate since 2014 by one measure, and Beijing is OK with that for now, FX strategist says

• China's yuan is at the lowest since 2022 by traditional metrics as economic growth has disappointed.
• But one measure of its real effective rate puts the currency at the lowest since 2014.
• "So valuation-wise, renminbi is starting to look cheap," a Macquarie foreign exchange strategist said.

China's yuan has fallen to the lowest rate in nearly a decade by one measure, and Beijing is OK with that for now, according to a foreign exchange strategist.

The yuan is at the lowest against the US dollar since November amid a disappointing post-COVID economic recovery.

The nominal rate is also at a 2022 low compared to the China Foreign Exchange Trade System currency basket, which is managed by the People's Bank of China.

But based on the real effective exchange rate against another currency basket from the Bank of International Settlements, the yuan is actually at the lowest since 2014, said Trang Thuy Le, a foreign exchange strategist for Asian emerging markets at Macquarie Group.

"So valuation-wise, renminbi is starting to look cheap," she told Bloomberg TV, referring to the yuan.

However, expectations of economic stimulus from Beijing could lift the yuan, Trang added. Markets got an early hint of what may be on the way when China's central bank announced a surprise cut to key interest rates on Tuesday.

And on Wednesday, the yuan rose 0.3% against the dollar to 7.147, even as the Federal Reserve indicated more rate hikes are coming after holding off at its just-concluded meeting.

"So I really think that the story from here is the China stimulus and the fact that RMB has already weakened a lot on a basket basis," Trang said. "And there's thought to be a bit of value there on a technical basis."

The yuan trades in a 2% range around a midpoint against the greenback, fixed daily by the People's Bank of China.

But Trang said she noticed that the central bank appears to be more open to the yuan depreciating instead of trying to push it higher with its daily rate fixes. 

That's due in part to relatively low volatility in currency markets and the yuan's gradual slope downward, she said. 

"But if FX volatility becomes out of hand again, the surely we'll start to get some form of PBOC resistance," Trang said.