(Yicai Global) May 10 -- After the recent depreciation of the Chinese yuan, a macro and forex analyst at UK bank Barclays said she believes there is only limited room for depreciation, as the redback will likely regain strength later this year.

"The recovery of the Chinese economy and a weak US dollar will limit the yuan’s depreciation range and even help it strengthen in the future," Zhang Meng told Yicai Global.

The yuan traded at 6.9275 against the dollar in the onshore market as of 4.30 p.m. yesterday, down 109 basis points from May 8. In the offshore market, it was at 6.9253.

The yuan could reach 6.9 to the dollar by the end of this quarter, but will likely strengthen to 6.7 by the end of the year, Zhang said.

"The redback may have recently softened because exporters are unwilling to sell US dollars," Zhang noted. Other reasons could be mixed economic data and geopolitical headwinds.

It is clear that Chinese exporters are hoarding US dollars and are unwilling to convert them to yuan because of the higher interest rates on dollar deposits in the Chinese mainland, Zhang pointed out, adding that that has also led to China's largest net foreign exchange settlements deficit since June 2019.

But if the situation changes, a decline in deposits may quickly weaken the US dollar. Therefore, Barclays expects the yuan to strengthen in the second half of 2023, also buoyed by a stronger economy and higher returns.

“We think the resistance level for the exchange rate of the Chinese yuan against the US dollar is 6.95, as exporters may decide to sell their US dollar holdings when this level is reached," Zhang noted.

The Chinese yuan gradually calmed down after record fluctuations in the past two quarters, Zhu Yanhua, an international business expert at a large bank, told Yicai Global, adding that this calm can be seen as the anticipation for the next storm.

“We should remain alert in case the yuan’s volatility range widens again in the second half of the year,” Zhu added.

Editors: Shi Yi, Futura Costaglione