CHINA should prepare for its currency to pull further away from recent highs if economic data continue to disappoint next year, a former senior official at the country’s foreign exchange regulator has warned.

The dollar index could dominate the yuan’s movements in 2022, even if China’s exports remain strong, as the year-end corporate demand that has otherwise held up the yuan fades, said Guan Tao, global chief economist at BOC International.

Guan previously headed the balance of payments department of the State Administration of Foreign Exchange (SAFE) and his comments appeared in an article published on Chinese financial media outlet Yicai yesterday.

The yuan’s rally against a strengthening U.S. dollar since September was “not driven by changes in market expectations, but was supported by real demand from the trade surplus,” he said.

Under such circumstances, if dollar strength continues on expectations of tighter U.S. monetary policy, markets “should not rule out chances for corrections in the yuan exchange rate,” Guan wrote.

The yuan has gained more than 2 percent against the dollar so far this year to become the best performing major emerging market currency. In trade-weighted terms, the yuan is at its strongest since late 2015.

(SD-Agencies)