Pity the currency trader trying to make sense of the renminbi exchange rate this year.
Following a record 6.5 per cent depreciation last year, investors began 2017 convinced that the renminbi would continue falling. Many predicted it could weaken to around 7.3 per dollar, from 6.95 at the end of 2016. Instead, the renminbi has gained 2.1 per cent this year and 1.6 per cent since May 9, closing at 6.8 per dollar on Thursday.
On the surface, this does not make much sense. While China maintains a healthy trade surplus, outflows through the capital account continue to surpass trade-linked inflows. Both official data and anecdotal reports from traders indicate that the supply of renminbi exceeds demand.
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