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BUZZ-COMMENT-Yuan's fate depends on China's plan for self-sufficiency - REUTERS

MARCH 03, 2021

March 3 (Reuters) - China's sharpened focus on economic self-sufficiency and consumption-driven growth may increase authorities' tolerance for yuan strength. With the National People's Congress due to kick off on Friday, next week could be pivotal for USD/CNH, which is hovering near a key support level.

The annual session of parliament will draft China's economic roadmap for the next five years , amid signs waning external demand may be dampening growth.

President Xi Jinping's 'dual circulation' strategy aims to enlarge the middle class to boost domestic spending, which has picked up this year after slowing in December . A stronger yuan may embolden consumers, at the risk of denting exports slightly.

As the U.S. tries to handicap China by limiting access to tech manufacturing resources , Beijing is driving innovation to build its own high-tech factories, which may entail attracting foreign talent, thereby inflows.

Increased state support and allowing greater foreign ownership of companies should also attract more overseas capital. Yuan inflows are set to rise faster, notwithstanding some concern from authorities .

USD/CNH may slip back under its 6.4668 Fibonacci retracement line. A Friday close below 6.4580 also activates the weekly Bollinger downtrend channel, encouraging yuan bulls.

China has in the past preferred to suppress yuan appreciation, but in countering the U.S. challenge to its economy , it might accept that a stronger currency is not a bad thing.

(Ewen Chew is a Reuters market analyst. The views expressed are his own.)


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