A China yuan note is seen in this illustration photo (Photo : REUTERS/Thomas White/Illustration/File Photo)
The yuan exchange rate faces greater uncertainty with two-way volatility becoming a norm, a market coordinating framework supervised by the China central bank said on Wednesday, urging companies not to bet on yuan appreciation.
China's yuan has been basically stable so far this year but companies should be on high vigilance to the risks of yuan depreciation, said the China FX Market Self-Regulatory Framework in a statement.
Factors that may trigger yuan depreciation include the U.S. Federal Reserve exiting from the quantitative easing policies, and robust U.S. economic recovery boosting the dollar, the statement said.
Pressure on Chinese exports after global supply capacity rebounded from pandemic lows, and a possible capital flight to the United States if asset bubble bursts are among other risk factors that could push the yuan lower.
Under China's market-based yuan mechanism, "forex exchange rate can rise and fall, so accurate prediction is impossible, and two-way fluctuation is the norm," it said.
The framework urged both importers and exporters to embrace a "risk-neutral" mentality and use hedging tools to minimize the negative impact from yuan volatility.
