CHINA'S currency will continue to rise this year with its internationalisation developing at a rapid pace, HSBC's currency analysts say in a report released yesterday.
In its latest worldwide currency outlook, HSBC says it expects to see "moderate gains" in the yuan this year, "supported by favourable cyclical and seasonal factors".
The report says the recent rally in the currency was more than a political move in reaction to the US election and the Chinese leadership changes.
"The recent strength has reflected a slow build-up in global confidence and an improving domestic growth outlook," the report says.
But it warns that previous expectations that the Chinese currency was set for a major appreciation as authorities continued to relax exchange rate controls were now receding, with the yuan approaching an "equilibrium value".
"The yuan has been performing quite well of late," said HSBC's head of Asian currency research, Paul Mackel, releasing the report. "What we are witnessing is a more market-determined exchange rate offshore, which is a sign of things to come, particularly in 2013.
"We are expecting greater foreign exchange reform, which will help greater flexibility for the exchange rate."
Mr Mackel said he expected Chinese authorities to be less interventionist in the exchange rate in future.
"We are looking for more capital account opening," he said.
"These factors should lead to the Chinese yuan becoming more market-determined going forward."
The report says that intervention in foreign exchange markets by the People's Bank of China has been "minimal in recent months".
It says China's level of outward investment is increasing towards the levels of foreign direct investment into the country, which should also help reduce upward pressure on its currency.
HSBC is predicting that the yuan will become convertible within five years.
