Reuters poll: Trade optimism between the United States and China to help the yuan

BENGALURU (Reuters) – The Chinese yuan will maintain its recent gains against the dollar and will likely make a slight advance from current levels next year, the optimism sparked by a US-China trade deal easing the US dollar. Concern caused by weak domestic economic growth, a Reuters poll showed.

After falling by about 6% against the dollar in 2018, while badysts were betting early January an increase to 7 dollars per dollar in the middle of the year, the yuan defied the pressure and gained about 2, 5% this year.

This rebound was largely driven by the progress of trade negotiations between Washington and Beijing and the People's Bank of China (PBoC), which has consistently set higher average reference rates.

The yuan is expected to gain 0.6 percent to $ 6.66 a year in a year, from about 6.70 on Wednesday, according to the latest poll by more than 60 foreign exchange strategists over the past week.

This is a modest improvement over last month's forecast.

"Trump's withdrawal from tariff escalation, which was previously implicit in our forecasts, means that our USD / CNY forecasts must be lower," said Cliff Tan, Head of Global Markets Research at MUFG Asia l & # 39; Is.

Market watchers turned their attention to the latest round of talks in Washington after the two sides reported on the progress of talks in Beijing last week.

"Any final trade agreement between the US and China will have a monetary component and the FX markets initially indicated that the USD / CNY had become a one-way bet – a stronger yuan. But a too strong yuan could also make future monetary diplomacy difficult, "said Tan.

Hopes of a stronger yuan are also partly driven by the fortunes for the dollar.

The dollar's outlook eased after the US Federal Reserve last month dropped its expectations for further interest rate hikes this year due to signs of an economic slowdown.

This could help dispel last year's slide in emerging market currencies.

"The end of the Fed's tightening cycle now seems to be clearer and there is indeed a risk that it is already reached." Overall, the Fed's policy developments should become a hurdle for the Fed. more and more important for the US dollar and stronger for the renminbi, "said Erik Nelson, currency strategist at Wells Fargo.

The latest poll's forecasts indicated a complete change from a January survey where a majority of strategists had predicted that the yuan would have reached the break-up value or would trade at $ 7 per dollar by the middle of the year.

In the latest poll, badysts were mostly optimistic about the yuan and only four respondents still expect it to reach $ 7 per dollar or more over the next year, attributing this pessimism to an economic slowdown and to an increased relaxation of the policy.

"We are extremely concerned about the ability of the Chinese economy to continue to drive growth without a significant decline in the exchange rate," said Jane Foley, head of currency strategy at Rabobank, who predicted that the yuan would reach 7% the dollar end of September

"A trade agreement could give rise to a short-term celebration, but again, in order to maintain economic growth at a rate as fast as the government wants, it is safe to badume that the yuan will fall below 7 percent. dollars, "said Foley. , which was the most accurate currency forecaster on major currencies in Reuters polls last year.