Banks Forecast Weaker Yuan as Drive for Dollars Grows

 

Investment banks are cutting their yuan forecasts as China’s currency heads for its worst month in nearly three decades.

A median forecast of nine banks now predicts the yuan to trade at 6.63 per dollar at the end of the second quarter. A majority of them expect the yuan to weaken further to 6.71 towards the year-end.

JPMorgan has cut its yuan forecasts twice in a week, and analysts at Standard Chartered, HSBC and others have also turned bearish on the Chinese currency.

The yuan hit 6.6510 per dollar on Friday, an 18-month low.

“Authorities may welcome a weaker yuan to support growth and exports, as outflows are likely manageable,” Standard Chartered said, revising down their end-June forecast to 6.7 per dollar from 6.35 previously.

The banks had previously forecast the currency to trade at around 6.4 at end-June in their annual outlook published late last year, when the yuan was rising steadily and among the performing emerging market currencies.

The turnaround has come amid April’s 4.6% plunge for the yuan against the dollar, which has the currency on course for its biggest monthly drop since China unified official and market exchange rates in 1994.

A worsening growth outlook, hurt by Covid-19 lockdowns, and the widening policy gap with the US is also likely to drive flows toward dollars in the near term, analysts said.

“We believe the market’s perceived monetary policy divergence between Fed and [People’s Bank of China] could reach the max level in Q2 to Q3,” said Wang Ju, head of Greater China foreign exchange and rates strategy at BNP Paribas.

 

  • Reuters, with additional editing by George Russell

 

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.