Yuan to regain some ground if trade tensions ease

Source:Reuters-Global Times Published: 2018/8/9 17:28:39

Analysts warn currency could fall below 7 per dollar in a year: Reuters poll

China's yuan will regain some of its recent sharp losses against the dollar and appreciate over the next year, but only if trade tensions between the world's two largest economies ease, a Reuters poll found on Thursday.

The yuan has weakened almost 5 percent so far this year and hit a 14-month low last week, primarily driven by new tariff threats from the US and retaliatory warnings from Chinese authorities.

"We believe the yuan may potentially strengthen against the dollar if the current triggers are removed. Indeed, if US President Donald Trump takes a step back from imposing further tariffs, this may help reverse some of the market concerns about USD/CNY," said Jeff Ng, Asia chief economist at Continuum Economics.

"The yuan could also be granted a reprieve if markets expect the Federal Reserve to slow its pace of rate increases or start to worry about the US' current account deficit."

The yuan was expected to gain around 2 percent to 6.70 per dollar in a year, according to the poll of more than 60 foreign exchange strategists.

The spot market opened at 6.8297 per dollar and was trading at around 6.822 on Thursday.

After largely standing aside in recent weeks while the yuan fell, there are signs that Chinese authorities are now looking to put a floor under the currency and discourage bets on further losses that could trigger capital outflows.

Last week, the central bank said it would require banks to keep reserves equivalent to 20 percent of their clients' foreign exchange forwards positions, in a move to stabilize the yuan.

Still, the 12-month forecast for the yuan was the most pessimistic median in Reuters polls conducted this year.

According to a separate Reuters poll on currency positioning, investors piled bearish bets on the yuan to the highest on record, amid the escalating tit-for-tat trade battle between the world's two biggest economies.

"It is an understatement to say that the near-term outlook for the yuan remains highly uncertain. In the event that trade tensions escalate further, 6.95-7.00 could be the ultimate top for USD/CNY," noted Khoon Goh, head of Asia research at ANZ.

But Goldman Sachs told clients in a note that it believes an eventual "deal" between Beijing and Washington still seems to be a reasonable base case assumption. It expects the currency to touch 6.60 in 12 months time.

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