Global investment banks lowered Chinese yuan predictions as the currency slid below the 7-per-dollar mark, pressured from widening rate differentials with the US and expectations of more support to bolster the economy after Covid-19.
So far this year, the yuan has depreciated by roughly 4% against the dollar, making it one of Asia’s worst performers. On Wednesday, it was trading at its lowest price of 7.1643 per dollar.
J.P. Morgan reduced their 2023 yuan forecast from 6.85 to 7.25 per dollar. The bank stated that fundamentally negative carry will keep the currency under pressure, preventing CNY-supporting movements including bond inflows from overseas portfolio investors and corporate dollar sales.
Goldman Sachs forecast that the goods trade surplus will drop from its present high level over the next few months, regardless of the surplus’s low FX conversion ratio, while the services deficit would expand as international travel resumes.
Swiss UBS said the US economics team recently reduced its Fed fund rate estimate, predicting a 25 basis points (bps) rate decrease at the December meeting, down from a 100 bps fall in September.
Thus, the yield spread may not narrow as much as anticipated. China’s recovery has also been weaker than expected. This may slow portfolio inflows soon. UBS expects China’s yuan to fall to 6.9-7.0 from 6.8.