Yuan’s Drop Aligns It With China’s Cooling Economy, Easier Policy

www.oann.com | 5/31/2017 | Staff
gbabii05 (Posted by) Level 3
SHANGHAI/HONG KONG (Reuters) – A surprising rally for China’s yuan over the turn of the year has been cut short by widespread expectations that Beijing will ramp up policy easing in coming months to avert a sharper economic slowdown.

The yuan has retreated to the weaker side of 6.8 per dollar this week, but is still up nearly 3 percent since early December on hopes that Washington and Beijing may be inching toward a trade deal.

Gains - Currency - Asia - Expectations - Beijing

Gains in a currency that was one of Asia’s weakest in 2018 were also fueled by expectations that Beijing does not want to see the currency drop too much, in case it becomes a sticking point in negotiations with the Trump administration.

But analysts say mere optimism over trade talks cannot take it any higher, unless it’s driven by a dramatic decline in the dollar. Caution over trade and the extent of further Chinese easing are likely to cap the yuan’s gains.

Trade - Negotiators - March - Deadline - Washington

Trade negotiators are facing an early March deadline and Washington has threatened to sharply hike tariffs on Chinese goods if there are no substantial signs of compromise from Beijing.

“If we look back, the three factors driving renminbi depreciation, including dollar appreciation, the trade war and interest rate differentials last year, only dollar appreciation has turned,” said Tommy Xie, an economist at OCBC Bank in Singapore.

Uncertainties - Trade - China - Slowdown - Policy

Uncertainties over trade, China’s slowdown and policy easing would cause the yuan’s yield differences with the dollar to narrow, and place it under pressure, he said.

Stefan Hofer, chief investment strategist at the Hong Kong branch of private bank LGT, expects the yuan to weaken to 6.9 in three months and then recover to 6.7 in 12 months.

Hofer - China - Bank - Investor - Confidence

Hofer said China’s central bank should prioritize restoring investor confidence in its capital markets, in particular its equity markets which plunged last year. Currency stability is...
(Excerpt) Read more at: www.oann.com
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