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Investing.com - The Chinese yuan has strengthened against the U.S. dollar since April’s lows, alongside rising 10-year government bond yields and Chinese equities, according to a report released by BCA Research on Thursday.
BCA Research indicates that cyclical factors support continued yuan appreciation, citing dollar weakness and narrowing growth and interest rate differentials between the United States and China as key drivers of this trend.
The research firm notes that from a structural perspective, the Chinese currency remains "deeply undervalued" and points to historical precedent where similar periods of undervaluation have led to multi-year appreciation cycles for the yuan against the dollar.
Over the next three years, BCA expects Chinese authorities to permit steady appreciation of the yuan versus the dollar, while predicting that nominal bond yields will resume a downward trajectory after their recent rise.
The firm forecasts the Chinese yuan will strengthen to between 6.5 and 6.8 against the U.S. dollar within the next 12 months, while long-duration Chinese Government Bond yields are expected to fall below 1.5% during the same period.
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