The yuan strengthens and warns traders

18/10/2019

 

 

Investors may be discouraged from selling the Chinese currency in the short term because it is increasingly stronger against the US dollar

 

 

The yuan could strengthen beyond 7 per dollar in the short term. This is the forecast by Zhou Hao, an economist at Commerzbank AG, that investors should think twice before betting against the Chinese currency.

The main reason is that the market, according to the analyst, has not forgotten the possibility that China and the United States will reach a more concrete agreement in their dispute, so the yuan and the US dollar ratio could change.

Zhou said: “Investors should not rule out the possibility that good news on trade talks will emerge in the short term. So I suggest traders to be flexible and companies don’t be too speculative when they buy the dollar against the yuan.”

 

Some investment banks expect new short-term gains for the Chinese currency

 

Making the yuan move investors was the August event that saw the Chinese currency plummet over 7 for the first time in over a decade. Subsequently, the United States formally labelled China as a currency manipulator.

AxiTrader strategist Stephen Innes said the yuan at 7 is “an enormously critical level of risk sentiment,” Innes said, adding that the currency could reach 6.9 by the end of the year if China and the states United had made great progress in the negotiations. “They are long Asian currencies for the first time in two months”.

However, the yuan in this period fluctuates with Chinese and American politics. For example, the yuan fell on Wednesday while China promised retaliation if the United States passed a bill to support the Hong Kong protests.

 

Citigroup and Societe Generale are among the brokers who say that the yuan will remain weaker than expected

 

Morgan Stanley recommended that investors continue long on the offshore yuan with a target of 6.95, while Bank of America Merrill Lynch said the currency could test 7 on any short-term deal.

Zhou of Commerzbank said: “In the longer term, China must use managed depreciation to offset the impacts of higher tariffs and stimulate exports.” In addition, Zhou expects the yuan to trade at 7.15 at the end of the year. “Officials will not allow a rapid decline: the red line of politics is around 7.2”

 

 

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