BENGALURU (Reuters) – The Chinese yuan will slip from deeper lows last year against the US by year-end. The dollar during the 2008 global financial crisis as authorities partially managed the currency down while the US-China trade war rumbled on, a Reuters poll showed.
FILE PHOTO: Chinese 100 yuan banknotes are seen in this picture illustration taken in Beijing July 11, 2013. REUTERS / Jason Lee / File Photo
With global uncertainties aplenty and a U.S. Election year approaching, any possible resolution to the trade war next week's talks will be hampered by signs of a weakening yuan. Chinese markets are closed until Oct. 7 for public holidays.
To counter losses from trade war and regain export competitiveness, the People's Bank of China has consistently set the yuan's mid-point rate above the key 7 per dollar rate, allowing it to fall about 2% after Washington labeled it a currency manipulator in August. .
The Sept. 24-Oct. 3 polls of over 60 foreign exchange strategists showed the yuan CNY = CFXS would be about 1% weaker at more than a decade-low of 7.20 against the dollar by end-2019. It closed Monday at 7.15.
The currency is forecast to hover around the same rate by March 2020 and then appreciate to 7.16 per dollar by this time next year.
“The yuan is being held up by string, bogies and glue. The trade war is going to get worse, ”said Michael Every, head of financial markets research at Asia-Pacific at Rabobank, which was the most pessimistic forecaster for the 12-month horizon at 7.75, not seen since early 2007.
“There will be more downward pressure on the yuan and when that happens. It is bad news for all emerging market currencies. ”
Analysts were divided on expected moves in US-China trade relations, with over 60% anticipating further deterioration or a continuation of the status quo and the rest forecasting an improvement.
Forecasts for where the yuan will trade in a year are split too, with 31 of 60 respondents expecting it to weaken further and 29 respondents seeing the yuan gaining from here.
"I think there may be some signs in the shorter term that things are going to be the same or maybe the trade tone is up or maybe there is a small deal," said Martin Rasmussen, China economist at Capital Economics.
"But some of the core issues at the center of trade such as industrial policy, intellectual property theft and so on – we don't think China will be willing to compromise a lot."
These developments keep threatening gains for other Asian currencies, barring the Japanese yen. All but one respondent to an additional question expected another sharp depreciation in the Chinese yuan to pose “serious risks” to other major Asian currencies over the coming year.
"Unless an interim trade deal materializes, we think the economic and monetary easing pressure will see CNY weak, even though it will likely be driven by the PBoC," said Khoon Goh, head of Asia research at ANZ in Singapore, referring to People's Bank of China.
A much weaker currency would raise capital risks, something China has controlled for years, but a weak growth outlook and expectations of further policy make things difficult for the world's second-largest economy.
“They will continue to do whatever is necessary to try and save money. But limiting how much tighter capital controls you can get – they're already incredibly draconian, ”Rabobank's Every added.
Reporting by Sumanto Mondal; Additional reporting by Vivek Mishra; Polling by Anisha Sheth and Shaloo Shrivastava; Editing by Ross Finley and Lisa Shumaker