Yuan to lose on trade disputes

Reuters is out with the results of their Asia FX poll, and while participants see a positive outlook for emerging Asia currencies over the coming year, the yuan is seen at risk amid trade uncertainty.

Key quotes (source: Reuters)

While Asian currencies, which are heavily exposed to global trade, should have taken a hit from the ongoing tit-for-tat trade row and on expectations for faster rate hikes from the U.S. Federal Reserve, most of them have gained this year.

The latest Reuters poll of nearly 70 foreign exchange strategists polled April 3-6 showed most emerging Asian currencies will appreciate anywhere between 0.5 percent and 3 percent by this time next year against the dollar.

The U.S. currency is down around 2 percent this year and the outlook has dimmed further as the dollar has fallen in recent weeks.

In line with those expectations, a separate Reuters poll on positioning showed bullish bets on most Asian currencies increased over the past two weeks.

But the latest poll showed the Chinese yuan, which posted its biggest quarterly gain in a decade in the previous quarter and is up about 3 percent against the dollar so far in 2018, was set for a dull year ahead.

The yuan is now forecast to shrug off some of those gains and fall 0.8 percent to 6.35 per U.S. dollar in a year from around 6.30 on Friday. But the 12-month consensus is stronger than the 6.40 expected in March.

“We expect CNY to slightly depreciate again over the coming quarters against the USD, due to weaker growth prospects for the Chinese economy,” noted analysts at Commerzbank.

A series of Chinese data over the coming weeks is expected to show the world’s second-largest economy, which is still largely export-driven, has slowed slightly partly due to the growing risks from the Sino-U.S. trade row.

Still, about 45 percent of over 60 strategists who had a 12-month view, forecast the yuan to strengthen, including the most optimistic call for it to rise to a record high of 5.90 in a year.

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